Das Gespenst der Inflation: Wie China der Schocktherapie entkam

Routledge Studies on the Chinese Economy

by Isabella M. Weber

Ein Lehrstück über den Umgang mit Preissteigerungen
Nach dem Ende von Maos Herrschaft stand die politische Führung in China Ende der siebziger Jahre vor gewaltigen Wie sollte sie das bankrotte Wirtschaftssystem neu erfinden? Wie eine galoppierende Inflation vermeiden, die als Schreckgespenst durch das Land spukte? Durch Schocktherapie oder schrittweise Reformen? Letztendlich obsiegten die Kräfte, die für einen staatlich gelenkten Wandel plädierten. Anders als Russland, das nach dem Zusammenbruch des Kommunismus in einen katastrophalen Abwärtsstrudel geriet, erlebte China einen beispiellosen Aufstieg.
Isabella M. Weber, eine der bedeutendsten Ökonominnen ihrer Generation, zeichnet in ihrem hoch gelobten Buch die damaligen Debatten um die Neugestaltung des chinesischen Wirtschaftssystems minutiös nach und ordnet diese Diskussionen in die langen Traditionen des ökonomischen Denkens im Reich der Mitte und des Westens ein. Insbesondere zeigt sie, wie es gelang, die Inflation zu begrenzen. Chinas Weg zurück in die Weltwirtschaft, so Weber, ist nicht nur die Geschichte einer einzigartigen Transformation. Angesichts der Verwerfungen auf den Energiemärkten und der dramatisch gestiegenen Lebenshaltungskosten sind die Auseinandersetzungen um Preiskontrollen und andere staatliche Eingriffe zudem lehrreich für aktuelle Debatten.

Genres: China, Economics, History, Politics, Nonfiction, Asia, Business

529 pages, Kindle Edition

Published April 17, 2023

Reviews

[Owen Hatherley · Rating 4 out of 5]

Dense and technical but very very interesting: above all else, a book about a conflict between a) deriving an economic policy from extreme abstraction, as represented by the neoliberalism brought to China by a combination of Milton Friedman himself, and Eastern European disillusioned Marxists-turned-Friedmanites (for whom the connection between this and the equally perfect, equally stupid abstraction they'd favoured as Stalinists, is pretty obvious), and b) deriving an economic policy from observation of what actually exists, what has actually worked historically, and what the productive forces might actually be able to do in the actual present day. (or, TLDR abstraction is a fun pursuit in art and philosophy but not so clever in running a gigantic economy without throwing millions of people into acute misery). Also intriguing on how the two camps of reformers reacted to the crisis at the end of the 1980s - not always in the way you'd expect.

Another strain illustrates how over the course of the '80s the most influential wing of Chinese reform economists gradually shook off the colonial mentality that whatever western 'science' argued was necessarily the state of the art, and instead sought truth from facts, as someone once said, and as a result, had successes way beyond what they or anyone else could have imagined. It is important to bear in mind this is about two competing ways of introducing capitalism and dismantling a state-socialist system - it doesn't offer nearly as much succour to 'China is still red' people than they appear to think online - but highly worthwhile; and a reminder of the special place in hell reserved for the Eastern European intelligentsia of the 1980s, a group of bored, broadly privileged people who caused untold misery to massive amounts of people, but, through the independence of thinking of their counterparts in China, weren't able to do so here.

[Nils · Rating 5 out of 5]

An incredibly important contribution to the history of development — it’s basically a story of the evolution of the single most significant (in terms of impact) doctrine and practice of development, namely the Chinese Communist Party’s turn to “reform and opening up.” Weber explains how a new generation of young Chinese elite cadres, who had been sent down to the countryside during the cultural revolution, came from that experience to realize that rather than class struggle, material development was the single most pressing imperative for the country, one rendered impossible by central planning. These young economists unconsciously aided with the neoliberal critique of state socialism being promoted at the same time in the west, while retaining a conscious fealty to Marx against the neoliberal ideal of an unrestrained market economy. The result was an argument in favor of greater use of market mechanisms and price signals for allocating goods, without for a second implying a withdrawal of party or state authority.

[Rob M · Rating 5 out of 5]

Essential reading for anyone interested in critical economics, socialist history, and modern China - or indeed all three!

Although the focus - the relationship between reformist economists and the political leadership - is quite narrow, we learn a lot about the ideological atmosphere in China in the 1980s. It's clear that many influential intellectuals and high ranking politicos had essentially abandoned communism by the late 1980s, just like the neoliberals and nationalists that sprung up like mushrooms in Eastern Europe in the years leading up the collapse of European socialism. However, unlike in Europe, Chinese reform was moderated by deep divisions between the reformists themselves, and a continued belief in the moral authority of the CCP by its own leadership.

Shock therapy prescribed a destructive and sudden liberalisation of the planned economy to shatter it apart, allowing a market economy to arise spontaneously in its place. There were strong and persistent arguments in favour of this approach, based on the flawed theoretical assumption that markets naturally arise always and everywhere the distorting influence of the state is withdrawn. These arguments were especially influenced by disillusioned Eastern European economists who had broken with socialism after the failures of their own reform projects in the 1960s and 70s. The usually unspoken but clear subtext of this approach was that the communist monopoly on state power would be shattered along with the planned economy, and that this shattering was a precondition for reform itself.

Despite strong support for this approach among really influential and significant individuals, China drew back at the last minute. At a theoretical level, important reformers realised, through the study of comparable developing economies, that enterprises not equipped to respond to market signals would not suddenly become effective market actors, but bin fires. This is, of course, exactly what ended up happening in Russia. On a practical political level it was the threat (and indeed onset) of social instability and threat to CCP rule which caused China (and Deng Xiaoping specifically) to pull back before it was too late.

Instead of smashing the planned economy at the centre, China adopted policies that acted to freeze the scope of the planned economy, and forced it to grow outwards into the market. By adopting "duel track" state/market pricing systems, gradual reform of enterprises in the direction of autonomy, and zonally limited integration with the world economy, the Chinese economy liberalised at the margins, without breaking at the centre. The result was an island of economic planning situated in an ocean of market activity, the basis of the modern Chinese system.

Although this clearly represented an abandonment the traditional state-socialist model of economic planning, it maintained and modernised the core socialist institutions around the commanding heights of the economy. The result has been the birth of a successful mixed economy in which the state participates through strategically placed publicly owned enterprises and a strong macroeconomic regulatory framework.

Weber, like the Chinese reformists, is more concerned with the facts than how they are described ideologically. However, its hard not read her carefully researched thesis as an implicit argument in favour of contemporary Chinese socialism. Although Weber stops short of saying it outright, the modern Chinese system represents a kind of realisation of the Western European ideal of muscular social democracy which ran aground in the 1970s.

[Sam · Rating 4 out of 5]

Pretty much what I was hoping for. This can be a tough book, but it’s a really specific and detailed account of the intellectual debate around China’s economic reforms. Weber’s argument, as I understand it, is as follows: that China would reform economically after Mao was inevitable, but its leaders had to decide how quickly and to what extent they wanted to do price reform. The prevailing neoliberal economic wisdom was to drop price control policies all at once (shock therapy), but China didn’t do that—its leaders decided to relax price control measures gradually and on a case-by-case basis (“crossing the river by touching the stones”). Why? Weber suggests that China’s rich history of effective governmental involvement in the economy made it easier for economists and leaders to imagine alternatives to market supremacy. But China’s more patient relaxation was mostly the result of a yearslong debate between many economists with many different ideas about the right path forward. The “gradual experimentalists” won the price reform argument in 1986, and Deng prioritized the Party’s survival over shock therapy in 1988-89, meaning China twice avoided the abrupt reforms that would wreck the former Soviet Union.

Fortunately Weber assumes we know basically nothing about economics, and she makes the concepts she’s talking about very accessible. The assumption behind shock therapy was that tearing down a planned economy all at once would naturally create a stable market economy; the process consisted of “(1) liberalization of all prices in one big bang, (2) privatization, (3) trade liberalization, and (4) stabilization, in the form of tight monetary and fiscal policies” (4), accompanied if possible by the collapse and replacement of whichever government ran the country that economists were trying to shock. It’s what the now contrite Jeffrey Sachs helped do to Yeltsin’s Russia, which, rather than experiencing a brief jump in prices followed by stabilization like the Russians were promised, suffered prolonged inflation and has since been caught or left far behind by China in average income, GDP, etc. (2-3). Russia and other post-Soviet countries given shock therapy declined in many metrics of well-being, including education access, percentage of citizens not living in poverty, and public health (6).

Zhao Renwei, one of the economists who participated in China’s reform debates, tells Weber that “In the years 1978 and 1979 China could not have gone on without change. Not changing was not a possibility. We had to reform. But how to reform? This was not clear” (104). As Weber puts it, they could choose to change “by destroying the old system or by growing the new system from the old” (9). China avoided the former Soviet Union’s fate by choosing the second option and adopting a mixed, gradual, experimental approach.

“The old” above refers to both the Maoist infrastructure that existed in the late 1970s and the older logic of Chinese economic governance, much of which had been incorporated already into Maoism. This logic comes from the Guanzi and the Salt and Iron Debate, two of China’s most important economic reference points, both predating the Qin Dynasty. It’s important to note that Weber is not arguing modern Chinese leaders were drawing on some kind of ancient traditional Eastern wisdom; instead, she points out that the Guanzi and Salt and Iron Debate have been influencing state policy directly or indirectly for over two thousand years and therefore inform people’s assumptions about how involved the government should be in the economy.

The Guanzi’s most famous insight is its “balancing” principle, according to which goods are “light” (insignificant/cheap) or “heavy” (important/expensive). Goods are not inherently light or heavy. “When people valued something, it would become ‘heavy’ or in the opposite case ‘light’” (24). Leaders therefore ought to be economically flexible and avoid rigidly following a set of guidelines. The Guanzi treats grain as the most important commodity, “the people’s Master of Destiny,” the commodity that dictates the price of all other commodities; rulers are advised to buy grain from peasants during the autumn harvest, when it’s light, and sell it to the peasants during planting season in the spring, when it’s heavy: “This scheme stabilized both the price for grain and the general price level” (25).

The Guanzi also “suggested a partial public monopoly over salt and iron” (27), as these are the second and third most important commodities after grain. During the Han Dynasty, the emperor Wudi and his advisor Sang Hongyang followed its advice, bringing salt and iron under partial government control and keeping commodity prices level across China by buying up commodities that were too cheap in one place and selling them in a place where they were too expensive (30). But after Wudi’s death, a group of intellectuals challenged Sang’s policies, arguing they would lead to degeneracy by prioritizing economic growth over an old-fashioned way of life where each person is “contented with his position” (33). Moreover, they said, state control of some industries resulted in lower-quality goods and higher prices than would a hands-off approach.

Sang won the debate, and his and the Guanzi’s ideas have been hard to get rid of. Forty years after Sang’s death, the government abolished the monopolies, only to bring them back three years later because the consequences were disastrous. More than a millennium later, Wang Anshi developed a system of agricultural loans whereby peasants were given money in the spring and expected to pay it back in the autumn, a policy rooted in the Guanzi. Famine relief systems in the Qing Dynasty (the same ones Mike Davis praises in Late Victorian Holocausts) followed the same logic. The Qing also “ran a state licensing system, granting monopoly rights for iron and salt to private industrialists. This came under attack from the British imperial power, following a ‘firm ideology … that all state regulation and all monopolies are pernicious'” (37).

Weber devotes a chapter to American economic policy during World War II to “illustrate that while China can look back at a tradition of price regulation dating back to ancient times, there is nothing quintessentially Chinese, traditional, or premodern about controlling prices” (42-3). The Office of Price Administration had been created “to achieve greater price stability and higher output growth than occurred during the First World War” (53). After some failed experiments with Galbraith’s scientific case-by-case price freezing, the US adopted Bernard Baruch’s plan for an overall price freeze with gradual loosening, which is how the OPA achieved its goals. During World War I, prices had skyrocketed while industrial productivity lagged; during World War II, prices were stable and industrial productivity more than doubled (53). Weber notes that this parallels the Russian and Chinese experiences since the early 1990s: in Russia, inflation has risen significantly faster than GDP; in China, GDP growth has far outpaced inflation (7-8). When US price controls were removed after the war, a move many in government opposed, inflation shot up (58); Weber contrasts this with the United Kingdom, which was much slower to remove its price controls and avoided the economic downturn the US experienced in the late 1940s (58-60). America turned to Hayek, Mises, and Friedman, who helped convince the world that all should be subordinated to the market and who laid the groundwork for shock therapy.

While the United States was struggling to get price control right, the nationalist government in China had Japanese invasion and hyperinflation to deal with. Local and regional markets were unable to coordinate with the national government, there was both a decrease in domestic agriculture productivity and a collapse in imports, and speculation and hoarding increased as industrial productivity declined (72). Like the Qing under British imperialism, the nationalists clashed with their American economic advisors over monopolies; “while the Nationalist government had aimed to reestablish the salt monopoly in December 1940, it aborted the plan in the face of pressure from American advisors” and installed a limited version with a tax instead (74). They also attempted to buy large quantities of essential (or “heavy”) goods to ration but were unable to (75).

Weber writes, “a key element in the Communists’ success in overcoming hyperinflation in the late 1940s and early 1950s was re-creating and integrating markets through state trading agencies” (70). First, they had to replace the Nationalists’ fabi with their own currency, the beipiao. Early CPC economists, led by Xue Muqiao, decided to back the beipiao not with gold but with essential goods; they also had to acquire other currencies to keep the beipiao’s value high. For money, they turned to the salt trade, issuing licenses to salt farmers willing to cooperate with them in order “to establish price leadership over essential goods” (80). This cut down on speculation and built trust in the newly issued renminbi, causing people to start saving with paper money rather than hoarding. Their strategy worked, and “as regards the economic side of guerrilla warfare, the strategies employed by Communist revolutionaries were at the same time rooted in traditional techniques of economic governance” (84).

The Chinese communists’ goal was to “change this backward agricultural country into a civilized and progressive, industrial one” (89). Weber believes their record under Mao was mixed. By the 1970s, China did have stable prices and a longer-lived and better-educated populace than it did thirty years earlier, but its industrial development had a high cost: “The Mao era price system functioned as a central mechanism to squeeze resources for urban industrialization out of the countryside” (95). Its development had also lagged behind other countries, leading Deng to declare in 1978 that China must now make it a priority “to catch up with,” possibly to “surpass—the advanced countries.” Deng made this comment two years after Mao’s death, as the delegations China had sent around the world, including to advanced capitalist countries, were returning home dismayed at their nation’s economic inferiority to Japan and Western Europe (105). In response, Premier Hua Guofeng invited foreign direct investment, and Deng advocated a policy of “seeking truth from facts” that would not discriminate against productive economic ideas that didn’t align with Maoist orthodoxy. The leadership was also determined to close the gap between the countryside and the cities and allowed peasants to start cultivating and selling grain privately, a step toward decollectivization. Economic development, “The material interest of the people and the cadres,” had “become the new driving force” (109).

This period is when Xue Muqiao developed an early version of the dual-track price policy. Under the dual-track policy, there would be a state price and a market price for essential (“heavy”) items, and the government would buy a quota of that item at the state price. When producers could supply more of a commodity than the state was required to buy, they could sell it to the state for an above-quota state price that exceeded the regular state price, or they could sell it on the market. The state would have a supply of crucial commodities that could be released in an emergency; conversely, if the market was flooded with a good and its price started to drop, the producers could always sell their excess product to the state for the above-quota state price. In theory, this would keep prices level and incentivize production. By 1984, there was so much grain “that, for the first time, the planned price and the above-quota state procurement price were higher than the market price … selling the quota at the planned price was no longer a tax but a subsidy for the peasants, and selling the surplus above the quota to the state protected the peasants from bearing the whole burden of the falling market prices … The underlying Guanzian logic of the multi-tiered price system became apparent at this moment of great success” (164).

This was also when outside economists started to visit China and lobby for shock therapy/package reform/a “big bang” in prices. These were mostly Eastern European economists disenchanted with socialism—Wlodzimierz Brus, Janos Kornai, Ota Sik—but there were plenty of Americans, too, most notably Milton Friedman. Weber also starts to introduce dozens of Chinese economists here, and it becomes a bit difficult for someone who’d previously only heard of a couple of them to keep track of who wanted to do what when. Either way, by the end of 1982, there were three main camps: the “big bang” advocates, who conceded that the removal of price controls would cause inflation in the short term but that this was the only way to achieve long-term gain; the planned gradualists, who believed China could do price reform in steps but that these steps must be pre-planned and as quick as possible; and the experimental gradualists, who felt it would be smarter to test out the policies on a case-by-case basis (145-6).

The first general economic reform decision came in 1984, when “China’s socialist planned economy was redefined as ‘a planned commodity economy based on public ownership, in which the law of value must be consciously followed and applied’ … This meant that the aim was that prices should no longer be set in a voluntary fashion, but that market conditions should be systematically integrated in the price-fixing practice.” Premier Zhao Ziyang announced that price reform was paramount and would require four methods of reform: “letting go of prices” for all small (“light”) commodities, “reform of the price-management system” by allowing lower levels of government to determine the appropriate prices for some commodities, “price adjustment” for production materials, and “market participation” by the state to stabilize prices (176-8). This “instituted the dual-track price system as national policy” (182), and “as it took hold of the core of China’s economy, it unleashed a powerful market dynamic that served to both transform and erode the existing state socialist institutions” (231).

But many economists thought the dual-track system wasn’t eroding those socialist institutions fast enough. “As soon as the dual-track price system became official policy, it was fiercely attacked by economists inspired by neoclassical economics, monetarism, and the approach of the Eastern European reformers” (185), who urged the Chinese leadership to accept the inevitable short-term pain of shock therapy. This set the stage for China’s first escape in 1986. Zhao and Deng had been convinced by both Chinese and Western package reform advocates like Wu Jinglian and Kornai of the merits of a “big bang” in prices. Li Yining and the economists at the Chinese Economic System Reform Research Institute opposed package reform, citing Hungary and Yugoslavia’s struggles with reform: those countries both “experienced that liberalizing the prices for … goods did not adjust their internal structure. They entered an ‘inflationary spiral in which commodity prices and wages [took] turns going upward’” (217). Zhao got cold feet, and “By the late summer of 1986, what had started under the label ‘coordinated, comprehensive package reform’ was watered down to an adjustment of only the important and symbolic price of steel, combined with a partial tax and financial reform” (220). China instead continued with its policy of gradual marketization “that left the core of the old industrial system in place” (221).

By 1988, inflation and corruption were rising, and Deng and Zhao were pushing hard again for greater price reforms. Deng had his cat theory, and Zhao offered a blunter version of the same argument: “Whatever is conducive to the growth [of the productive forces] is in keeping with the fundamental interests of the people and is therefore needed by socialism and allowed to exist” (227). The consensus view was that the only way to deal with all the problems caused by the partial (neo)liberalization of the economy was to finish the job and go through with price reform. There’s debate about whether it’s Deng or Zhao who bears the most responsibility for this choice, but whatever the case, in August of 1988 the party “decided to basically abolish the dual-track price system and gradually liberalize the prices of core industrial products such as steel and energy, as well as of all consumer goods” while compensating laborers for the projected 70% increase in consumer prices over the next five years (252). The plan was never implemented, because when the People’s Daily reported that the Party was considering comprehensive price and wage reform, people panic bought, withdrew their money from banks, and protested in the streets; the savings rate dropped; inflation jumped to 28% (253). Unlike the shock therapists, Deng cared a lot less about whether China faithfully followed neoliberal reform prescriptions than he did about maintaining the legitimacy of the Party. “When the push toward radical price reform shook the political and social stability, the government rolled back the program, called for recentralization of power, reintroduced price controls over important commodities, and imposed a strict retrenchment policy to regain control” (253). The chaos led to the Tiananmen Square protests and Deng’s crackdown, which in turn led to Zhao’s removal from the government and to the silencing of many Chinese economists who had opposed shock therapy but supported the protesters (257).

Li Xianglu, Zhao's secretary, told Weber in 2016 that “The reforms of the 1980s progressed because they were not relying on a theory. If reforms had needed to follow a theory, there would have been no progress” (115). Similarly, if China’s leaders had put their country’s economy in the hands of Milton Friedman or any of the other doctrinaire neoliberals who believed it was good and necessary for a country to release all its price controls simultaneously, economic growth would have stalled and inflation would have skyrocketed. Weber notes that all China had to do to avoid total economic chaos was wait a few years before relaxing price controls over its “heavy” goods: in 1992-93, when it relaxed its price controls over goods like grain, steel, and oil, the market was large and stable enough that the resulting inflation was minor (269).

So it's dense but rewarding. Ton of great information. Would love to hear what Weber thinks about 21st-century China's economy.

[Miles Trujillo · Rating 4 out of 5]

Honestly just super interesting. I wish I knew more and had more time to spend studying it. Just an extremely informative book on Chinese economics and approaches to market liberalization. If, for anything, just super helpful seeing approaches beyond the standard ones found in western economic discourse.

[Jasmine · Rating 5 out of 5]

This ended up being perhaps my favourite book of the year. Weber’s argument is clearly organized and based on extensive interviews with dozens of key figures involved in China’s 1970s-1980s reform period. I’ll summarize briefly some of the key conclusions I drew from her research and presentation:

(1) China’s reform should be thought of as indigenous, not “westernization.” In charting a path forward, the CPC and their advisors looked to ancient philosophy and liberation era (1930s-1940s) policy, and rejected the “Washington Consensus” that ended up wreaking havoc on Eastern Europe in the 1990s.

(2) The question was never whether or not to reform, but how to reform. There were clear failures of the existing system to address the new stage of development China had entered. Furthermore, the modern industrial system had become increasingly high tech, and China needed to catch up and keep up with this rapidly changing system.

(3) The two approaches to reform can be grouped into idealist “package reform” and pragmatist “experimental gradualism.” The package reform position, which aligned with the Washington Consensus, was idealist because it formulated an ideal market state, and believed that implementing the required infrastructure would be sufficient to achieve it, all in one step (“shock therapy”). The pragmatist approach, on the other hand, adapted to changing conditions, recognizing the interconnectedness of the economy, and made use of the dual-track price system to raise production in key areas without increasing prices. These two modes of thought (idealist package reformers versus experimental gradualists) had echoes in ancient Chinese debates.

(4) When trying to understand the impacts of price control liberalization, it is important to study not only Socialist Bloc countries; liberal capitalist democracies also resorted to price controls in times of war, and provide valuable case studies for understanding typical economic patterns. For example, post WW2, the USA followed rapid price liberalization and experienced high inflation and unemployment. In contrast, the UK followed slow, incremental reform, and avoided these catastrophes. These same results followed, respectively, in the wake of Eastern Europe’s rapid price liberalization and China’s slow price liberalization.

(5) The CPC’s success in economic reform stems from their careful study of economic policy from multiple schools of thought, as well as interviews with bureaucrats from nations that also conducted economics reforms in the late 20th century (Eastern Europe and Latin America). Surprisingly, economists and those with actual hands-on experience diverged wildly. Economists promoted policies more aligned with the Washington Consensus while those in charge of implementing these policies were far more critical of their successfulness. CPC policy was informed by their analysis of neoliberal, Keynesian, and Marxist economic thought and economic tools.

(6) Despite price liberalization and increased reliance on market forces, the CPC retained control over large parts of the economy. Unlike the CPSU, the CPC did not relinquish political control over banks, allowing them to direct capital flows via market means. State owned enterprises continued to play a large role in the economy. New growth, particularly in non-essentials and consumer products, was privately owned while crucial but slower growing heavy industry and energy sectors remained under state control.

(7) Economic reforms were rolled out gradually, responding to economic conditions and popular sentiment — more poetically summarized as “crossing the river by touching the stones.” The CPC advanced reforms only when they felt they were on solid, stable footing. At times, they rolled back reforms in response to public outcry or rapid inflation.

Economies are complex and dynamic: it can take a long time to change course, yet on the other hand, rapid change can lead to collapse and crisis in just a matter of months. China’s reforms should be considered a remarkable success regardless of one’s preference for free markets or absence thereof. The CPC achieved its goal of economic development without the devastation that swept across other former planned economies. I wished Weber had spent a little more time analyzing measures related to quality of life; economic development is not the whole picture of economic success, and all industrialized countries went through significant poverty and deprivation during their industrialization. Still, quality of life in China seems relatively high, and continues to improve. The world holds its breath to see how China will tackle future reforms: will it liberalize further, or return to more socialized ownership of the means of production? My hope (and hunch…) is for the latter, but regardless of the path they choose, I feel confident it will be charted via thorough study, careful analysis of changing conditions, and long-term thinking.

[Zoltan Pogatsa · Rating 5 out of 5]

My review: https://visegradinsight.eu/china-avoi...

[G · Rating 3 out of 5]

hard to describe exactly but this book is written in a very german style. no, i will not elaborate further.

[Alex · Rating 4 out of 5]

The late 20th century saw a tremendous transformation of nearly every national economy as well as the entire global system. The various approaches to "regulated capitalism" (new deal, peronism, democratic socialist command economies, ordoliberalism, bretton woods, w.e and etc.) were experiencing a low point/collapse, and in that crisis of confidence in the post-war liberal order the Chicago Boys stepped in. This is more or less the standard narrative you can get reading your Naomi Klein or Yannis Varoufakis or any other center left critic of neoliberalism. It isn't a bad or inaccurate narrative, but if you move in these circles it is canned at this point. The story is marshalled to why no one since the boomers has experienced Fordist bliss and stability or how places in South America, Africa, South East Asia, or Eastern Europe have such staggering inequality. The fly in the ointment for these histories is China, which is used as a case study in Klein's 2006 opus but which seems to have bucked her prognostications (and the general narrative of market reform) in the ensuing 20 years. Weber's book is a direct engagement with this narrative, seeking to demystify what exactly happened during the "reform period" in China from roughly the mid seventies through late eighties.

First things first, please read the title again. It is not "How China Escaped Neoliberalism". This is a book about how China escaped "shock therapy" or "package reform" which was the kind of model imposed in places like Bolivia or Post-Soviet Russia of near overnight liberalization of prices, capital controls - really, any regulatory mechanisms a state has for meaningfully intervening in the economy. While this question is narrow Weber takes a laudably broad approach to answering it. Topics include: 2000 year old Chinese economic treatises on state intervention in the market for price stabilization; Galbraith and Keynes' attempts at price fixing and managing industrial production during the second world war; the "economic warfare" of Mao and the communists during the war against Japan and the Kuomintang. I deeply appreciate Weber's erudition as well as the way that these discursions, which may seem inessential, are actually deeply helpful at contextualizing the environment in which the reform debate eventually happens and the various cultural, personal, and theoretical orientations that the various actors have towards the central question.

If there's a criticism I have of the book its that the writing itself can be incredibly dry and ponderous. Yes, economic history does not have a reputation for being a page turner but c'mon - this is no Smith or Marx in terms of its technical jargon and yet both of those authors manage to be far more engaging. I think I also would have appreciated if this book had a proper epilogue. I understand that it is a doctoral thesis and as such those kinds of narrative contrivances are seen as beneath the dignity of the academy, but a brief followup on the impacts pass "the little bang" of the early 90s would have been both warranted and enjoyed.

Beyond those minor quibbles, this is essential reading if you're curious about how that whole "socialism with chinese characteristics" thing came about and what it actually means. Zubok's Collapse would be a good companion piece with this in terms of seeing how disastrously the Soviet Union navigated a similar situation.

[Andy Tuano · Rating 5 out of 5]

A really terrific academic study of the evolution of China’s economy from 1978-1989.

The book does not only cover the time span, but also gives a contextual backdrop in the first 4 chapters, spanning the nature of economic development in ancient China that mirrored developments in Deng’s time, the nature of economic orthodoxy in Western economies in their employment of price controls in WW2 and subsequent transitions and grappling against inflation, and the nature of the pre-reform Maoist economy following the Chinese Revolution in 1949.

I disagree with Weber’s ultimate conclusion that China embarked upon capitalism, simply via different methods, but the academic rigour is airtight and the credibility of sources is widespread, ranging from Western sources from the World Bank who attended conferences in China in the relevant period to interviews with exiled Chinese economists.

A must-read to understand China’s unique path of economic development, but it does require at least a passing knowledge of economic concepts first: very technical.

[Theo · Rating 3 out of 5]

Epic battle between package reformers a.k.a. shock therapists and team "groping for stones while crossing the river".

It took me four months to finish this book. Eventhough I get that it's not a pleasure read but an academic work, I don't know who would find passages like this helpful: "They included, for example, Deng Yingtao and Wang Xiaoqiang, who returned from Henan; Wang Qishan, from Shaanxi; Bai Nanfeng, Lin Chun, and Wang Xiaolu, from Shanxi; Bai Nansheng, Zhang Musheng, and Weng Yongxi, from Inner Mongolia; and Chen Xiwen, Zhou Qiren, and Zhu Jiaming". Most readers, I believe, would have enjoyed more and better visual aids.

I think the main takeaway is well summarised by her: "The mere removal of price controls could not transform the state-owned enterprises into market enterprises. They remained socialist production units insofar that they had no power over the magnitude of capital and labor they employed."

Two other interesting thoughts I came across: Socialism could create perfect market competition unlike capitalism because the state could break up monopolies and stop market distortions (Sik). Deng Xiaoping had a similar thought, he's quoted saying socialism means nothing if people stay poor, so socialism has to outperform capitalism by producing real economic growth.

[Aaron · Rating 4 out of 5]

the history was very good but the deep economic analysis was way over my head lol

[Wej · Rating 3 out of 5]

The author is a heterodox economist, more focused on political economy and intellectual history than on empirical modelling. So do not expect regression tables or econometrics here. Instead, Weber is interested in explaining why China, unlike countries such as Poland or East Germany, did not adopt a programme of “shock therapy” – the rapid and painful package of reforms that usually meant price liberalisation, mass privatisation of state industries, abrupt subsidy cuts and a rapid sell-off of public assets.

Similar works, such as Unlikely Partners: Chinese Reformers, Western Economists, and the Making of Global China, have explored the intellectual influences, but Weber’s contribution is to map the debate between reformers in China itself. She shows that the phrase “shock therapy” was rarely used at the time. Instead, softer euphemisms circulated, but the basic idea was the same: quick transformation in the belief that markets would self-correct. Weber carefully reconstructs the arguments of both camps: those pushing for radical liberalisation, and those advocating caution.

Her story highlights the eclectic intellectual influences on Chinese economists. They drew not only on Western free-market thinkers such as Milton Friedman, but also on reformist Marxists and ex-socialist economists like János Kornai and Włodzimierz Brus. The eventual outcome was a hybrid path, with “Chinese characteristics”: gradual liberalisation, limited experimentation, and a strategic decision to keep commanding heights of the economy under state control, whether directly or indirectly. This mixture allowed space for private initiative while retaining political stability and control over critical sectors.

The book introduces a dense cast of reformers, advisers and economists. After a while, especially in the audiobook version, it was difficult to keep track of individuals. This partly reflects the book’s academic origins. It is essentially an expanded doctoral thesis, with all the thoroughness and occasional heaviness that implies.

Overall, it is an informative and important study that explains how China avoided the catastrophic dislocations experienced in parts of Eastern Europe and the former Soviet Union. At times the style felt “very German”, deep but occasionally dry. Yet the central argument is persuasive and makes a valuable contribution to understanding China’s economic rise.

[Mikey · Rating 5 out of 5]

This book has it all, catty end notes, reconrextualization of classical Chinese philosophy, unconventional economic analysis, etc. Contra Gewirtz's book on the same general subject, Weber's book is more focused on the substance of the economic debates than the personalities, and she draws the implications forward more. She's also more pointed in her critiques of the influence of Milton Friedman on those PRC policymakers that triumphed/survived after 1989. Perhaps I'm biased (in the same direction she is) in a way Gerwirtz is not, but - agree with her or not - I think it is more helpful in shedding light on contemporary policy debates within the PRC on the economy. That is, it suggests that the unwillingness to stimulate consumption/make transfers to households is not merely about political economy constraints, but that ideological blinders. Worth the read considering, at least!

[Harry Liuson · Rating 4 out of 5]

Overall, I quite liked it although the structure of the book was a little disjointed. It wasn't entirely what I was expecting - it was moreso an intellectual history (hence the title, "The Market Reform Debate"). Still it was well researched and very in-depth.

There were two major ideological currents within the market reform debate: the neoliberal position which focused on "getting prices right" in broad-spectrum "package reforms," and a much more pragmatist position which focused on "crossing the river by feeling the stones." This pragmatist position was much more grounded in empirical research and understanding precisely the challenges and imbalances within the Chinese economy. Many of its early advocates were sent-down youths who were intimately familiar with the desperate poverty of rural China, as well as more experienced revolutionaries who had participated in the market-making and economic stabilization after the civil war. Weber makes the interesting point that both dogmatic faith in the planning and the market are both forms of idealism divorced from practical administration of economic affairs. In fact, she claims that many of the most ardent neoliberals were originally academic Marxists.

The overall sequence of events goes like this. The Mao-era economy was built on a system of artificially low agricultural prices which subsidized urban employment and industrialization, and high prices for manufactured urban products. Overall, prices were kept extremely stable throughout the first couple decades of the People's Republic, especially important goods like rice and cotton. Capital goods (machines, steel, coal) were entirely unpriced, being allocated directly from producers to consumers. Producers such as factories and communes were generally required to sell a certain quota to the state, and any surplus could be sold on the market. This quota-surplus system is known as the dual-track price system.

After Mao passed away and the Cultural Revolution ended, incremental price reform began to take place. Most important were the rural reforms, driven by the sent-down youth who had returned to the cities. The two major reforms were the end of collective farming and the raising of grain procurement prices.

(As an aside, see https://oliverwkim.com/papers/oliver_... for a paper which uses satellite imagery to repudiate the myth of the household responsibility system's success. The rise in rural prices is probably a better explanation for the rise in rural living standards, and increased use of fertilizers and machines also help explain better yields).

As China moved towards marketization, it became apparent that a price adjustment was needed. The prices of light industrial goods were far too high and primary inputs far too low. In 1984 the dual-track price system was implemented as national policy - but in fact it had already been in operation informally for some time. This allowed the flourishing of town and village enterprises in light industry; however, this was cannibalizing investment into heavy industry. This aggressive investment was causing inflation as wages and prices rose without any corresponding expansion in industrial capacity.

The responses to this issue illustrate the difference between the neoliberals and the pragmatists. One side wanted to impose monetary austerity to cool down the investment, the other wanted to address the structural causes by expanding heavy industrial capacity, and imposing constraints on investments and wages. Instead of reducing demand, they wanted to expand supply, ironically, unlike the neoliberals.

This is more or less how China expanded itself out the imbalances and inflation of the '80s. Rather than impose marketization in one big crash, the market evolved around a state-planned core. The market simply grew large enough that when the dual-trick pricing system was abolished in 1992, it did not majorly upset the economy. There were two near-victories for shock therapy, one was in 1986, but it did not come to pass, and another was in 1988, when Deng Xiaoping pushed through radical price reform which caused massive inflation, unleashed a decade of social tensions culminating in the 1989 Tiananmen Square massacre, and was ultimately rolled back.

International observers played a major part in this, usually with academic economists unconnected from actual policy experience advocating for shock therapy and European officials on both sides of the Iron Curtain advocating for more measured reforms.

All in all, I found it quite interesting. There were a few parts I've omitted, such as discussions on some ancient Chinese texts which touch on very similar themes of how the state should make use of the market, discussion of the American experience of wartime price-setting (a similar crossing the river by feeling the stones method).

Weber stakes out a clear position in favor of pragmatic state governance to address market failures and shows how exactly that kind of pragmatic governance was able to navigate China through difficult economic straits and set it on the path to become the world's number one economic power. However, the large focus of the book is on the intellectual debates, rather than the actual economics, which I personally found somewhat tedious at times.

[Pascal · Rating 3 out of 5]

EWIG habe ich für dieses Buch gebraucht. Dass ich es trotzdem gerne beendet habe, spricht Bände darüber, wie faszinierend seine Kleinteiligkeit ist. Der Titel könnte darauf hindeuten, dass Isabella M. Weber hier geradlinige Antworten auf eine geradlinige Frage liefert: Wie ist China der Schocktherapie entkommen?

Stattdessen liefert das Buch eine Chronik der gesamten chinesischen Wirtschaftspolitik und -philosophie, über Jahrhunderte und Jahrtausende hinweg. Deutlich wird dabei das besondere Verhältnis der chinesischen Tradition zur Inflation. Die Angst vor dem wirtschaftlichen Kontrollverlust prägt die chinesiche Wirtschaftspolitik bereits so weit sie sich als solche zurückverfolgen lässt. Gleichzeitig zeigt das Buch die lange Tradition der staatlichen/kaiserlichen Eingriffe in die Wirtschaft.

Ein erstaunlicher Teil der jüngeren chinesischen Wirtschaftsgeschichte lässt sich mit einem einzigen chinesischen Sprichwort zusammenfassen, das immer wieder zitiert wird: Mit den Füßen nach Steinen tastend den Fluss überqueren. Die bedachte Vorgehensweise, die da mitschwingt, liefert praktisch auch gleich die Antwort auf die titelgebende Frage: China entkam der Schocktherapie und dem neoliberalen Kollaps, weil es weniger impulsiv handelte. Weil es Dinge Schritt für Schritt verändert und immer erst dann den nächsten Stein aus dem Jenga-Turm zieht, wenn klar ist, dass nichts mehr wackelt. (Oder sich auch mal traute, Fehler einzugestehen und einen ungelenk gezogenen Stein vorsichtig wieder zurück in den Turm zu stecken.)

Dass es ganz so simpel am Ende doch nicht ist, zeigen die hunderten anderen Seiten, die in erstaunlicher textlicher Dichte fast schon erzählerisch jede Wendung und jeden Konflikt durchgehen, den Chinas Wirtschaftspolitik in den vergangenen Jahrzehnten (und davor) durchlebt hat. Es ist eines dieser Bücher mit höllischem Rechercheaufwand, die schon beim bloßen Blick in die Zeilen Ehrfurcht erregen.

[Zulu Fox · Rating 4 out of 5]

A really good book on an important and under-discussed (if somewhat niche) topic. This book really gets into the weeds, so if you have only a passing interest in Chinese history political-economy then this is definitely not for you. If, for example, you've never heard then name Chen Yun, or if you don't know what "SOE" stands for, I think that's probably an excellent indicator that this book may not be for you. Still, Weber really ties together all that's out there and presents a super compelling and easy- to-understand narrative of Chinese market reforms and the economic debates that informed them them.

In terms of original scholarship, the main contribution to knowledge here, I would say, is the series interviews Weber did with the relevant economists. It clearly really helped her to cement her understanding of just what went down and how. Ironically, most of the time I found myself much less interested in some of the internecine debates than with the general profiling of how the reforms happened and why the Chinese approach worked as well as it did (Weber herself clearly feels the Chinese course of action was highly preferable to the alternative of "Shock Therapy" and she makes a highly compelling set of arguments for why that is).

On balance, a really awesome book. My one small critique was that her chapter on the Salt and Iron economic debates really didn't add anything in my opinion and could have been dispensed with entirely, but on the whole, a really great read.

[Garrett Strain · Rating 4 out of 5]

Incredibly interesting story of the intellectual and policy battle between shock therapy “big bang” and inductive “gradual experimentalist” reformers which ended with the latter group winning out after an abortive attempt at wholesale price liberalization in 1988 led to the CCP keeping a modified “dual-track” price system in place and more gradually liberalizing prices for essential goods. But the latter group had been mostly erased from history because they supported the Tiananmen protestors and were purged.

Loved the section on the dialogue with Eastern European economists. Also loved the “crossing the river by feeling for stones” metaphor deployed by the gradual experimentalists (The river represents the transition from a centrally planned economy to a socialist market economy. Instead of building a theoretical bridge based sole on deductive first-principles, leaders "felt for stones"—meaning they engaged in experimental, incremental, inductive steps based on real-world feedback and evidence.)

I do feel like the book ended too abruptly and needed an analysis of how the outcome of the 1988 price reforms affected the future course of China’s “market socialism with Chinese characteristics.” Her analysis of this is barely two pages but would have been helpful to underscore the importance of the “market reform” debate for China’s economic development in the years that followed, not just that China avoided the disastrous fate of the 1990s Russia and other countries than implemented shock therapy.

[Rolin · Rating 4 out of 5]

This is an extraordinary piece of scholarship that is vigilant against generalization and fastidious to documenting the debate over market reform in China.

Weber has made a name for herself as one of the most engaging and imaginative writers in our current debates on inflation and reading this book it makes sense why. She's talked to some of the most shrewd economic thinkers who helped usher in the most significant economic transformation of the 20th century — the transition from China's state-owned system to a market one.

While situated in China, the scope of the debate is global with Weber pulling in economic thought from West Germany, the Soviet Union, Hungary, Chicago and more. She takes seriously the historical analytical frameworks that the economists in China had of price volatility during the Sino-Japanese War as well as near-ancient dynastic debates like over salt and iron monopolies or the contrast of "light" or "heavy" goods.

There's a rich history of non-Western political economic thought that can offer generative insight today. Weber's book contributes enormously to that and her writing on the current economy is indispensable. I hope that decades down the line, someone will write a book about her contributions today — maybe they'll call it "How America Escaped Larry Summers" lol.

[Ryan Day · Rating 4 out of 5]

Interesting account of how China decided not to self-immolate in the reform period. For years I’ve learned about the application of “neo-liberal” economic reforms, particularly how terrible they are and how they never do what economic policy should do (develop countries and make people's lives better). This book, paired with Giovanni Arrighi’s Adam Smith in Beijing, gives me a slightly different outlook. Milton Friedman was still the dumbest man on earth, and is currently burning in hell, and all of his disciples should be locked away in solitary confinement for the rest of their lives, but I now see how market mechanisms, guided by the state, can accomplish the goal of higher living standards.
All of the cases discussed, be it Ancient China, Post-war Germany, Civil War China, and so on, are very illuminating, as the book uses them to present economic concepts, some complex and others only seemingly so, as understandable. They’re combined with illuminating details of how the reformers' policies interacted with politics (how they learned not to push reform so far as to piss off the masses or destroy the state). This innate impulse within China, that one could not even raise the price of matches by a few cents, lest the people riot, leads me to some fairly controversial opinions:

- China is democratic, at least to a degree we don’t easily notice.
- It will overtake the west, it is inevitable.
- This is a good thing, and I hope NYC gets Belt and Road money to rebuild our subways.

An aside related to the third point but the book casually reaffirms something I’d forgotten: the U.S. could only stave off post-WW2 recession with endless military spending, first manifested in the American-led holocaust on the Korean peninsula. Hence, I await the day when this country no longer “leads the world.”

[Joseph]

Lots of details. Names, dates, debates... The author had interviews with many people who were literally in the room when decisions were made. I was very impressed with the author's work. Lots of good information, but I think I am retaining very little.

It was hard to work my way through this book. This felt sort of like reading a PhD thesis, and I wanted an undergraduate-level text. Maybe if I went back and read it again more carefully, while taking good notes, then I would get more out of it.

A simplified or abridged version of this book, that covers the main ideas in 100 or 150 pages might be good for non-academics to understand how China handled price reforms. But I predict that only academics or hardcore laypeople will enjoy or be able to fully digest this book.

[Jennifer Rivers · Rating 3 out of 5]

deep, narrow report of events in China leading up to late 1990’s

I had hoped to find a good mix of empirical and theoretical analysis of China’s evolution from pure communism to market socialism, but this book is more of a play-by-play account of people and events. The author is not ignorant of economics, but does seem slanted enough to miss major concepts. The account helped me better understand China’s economic history and conceptual framework, and how and why it was slow to adopt freer markets, but fails to tell a broader story about China, its economy, or its lessons for the broader world or economic historians.

[Anthony · Rating 4 out of 5]

"Shock therapy" can kill a country and its people faster than Mao's wildest ideas ever could. China was a hair's breadth from falling into the hands of butchers and charlatans during the hectic era of market transformation in the '80s, and Weber shows us the nature of the ideas up for debate in exacting detail with no reliance on old tropes about Communist China, its governing system, or its ruling philosophies.

It is excruciatingly dry though. It is a rough read for someone with great interest in the subject, much less someone with more passing interest.

[Jayasankar Thayyil · Rating 3 out of 5]

It would have been a more delightful and informative read if the author had also focussed on other aspects of market reform such as trade liberalisation and privatisation, instead of focussing just on price liberalisation.

[Adam Tadmore · Rating 4 out of 5]

I really enjoyed this book and would highly recommend it. It presents this era of chinese history in a new light (at least for me). The only thing I wished for it to do which it does not would be a greater economic analysis, but that is a personal preference.

[A · Rating 4 out of 5]

A fascinating topic. I learned an extraordinary amount and I think the book has a really sound thesis. While in the beginning some of the chapters seem a bit random, there's definitely intention and a coherent structure. I think the book suffers from a lack of strong editing. Last chapters meander while also feeling really incomplete. But overall a good book!

[Chloe Z · Rating 2 out of 5]

I'm sure this is a great book, but I am just not the target audience. I cannot understand economic history or economics for the life of me, lol. From what I can tell this is a great book on this topic, if that's what you're looking for

[KT · Rating 4 out of 5]

An excellent, well researched study of China's gradual marketisation and dual-track price system in relation to the policies of shock therapy that were advocated and implemented in the transition from socialist planned economy to capitalist market economy

[PF Chang · Rating 3 out of 5]

Informative, but tedious and repetitive.

[Agung · Rating 4 out of 5]

I wish there's more charts and figures, so I can see for myself the input-output, prices, and production data that these economists were debating over.

But still, this is a very impressive book