دوشنبه ۲۶ شهریور ۰۳ | ۲۰:۱۴ ۹ بازديد
most market economies, and this was particularly true of women past child bearing age.
Continuous full employment was not an unmixed blessing because there was no
‘creative destruction’ of loss making activities.
Resources available for household consumption were squeezed because the
communist-ruled economies typically saved between one quarter and one third of their
national income each year – a much higher rate than in most market economies. They
also allocated between one third and one half of investment to building industrial
facilities; again this proportion was much higher than in most market economies. A
much smaller proportion of industrial capacity was devoted to consumer goods, the rest
being set aside for producing industrial materials, equipment, and armaments.
When communist governments talked about ‘building socialism’ they meant it
literally. They gave priority and resources to capital projects and infrastructure: new
power stations, metallurgical and engineering factories, railways and canals, residential
micro-regions, automotive technologies, and space satellites. Industrialization and
urbanization were to a considerable extent the same: today, land under industrial use
accounts for 32 and 44 per cent of the built up areas of Moscow and St Petersburg
respectively, and around 25 per cent of large cities in Eastern Europe and China,
compared with 4 to 10 per cent for big cities in market economies.17 These industrial
cities symbolized the new socialist modernity. At the same time the productivity of
these investments was generally lower than might be expected of the same resources in
a market economy. Much was wasted in the form of projects that were finished late or
never, transport links that turned out not to be needed, and prestige ventures that
contributed only to the leaders’ vanity.
The communist-ruled economies were heavily militarized. The burden of a large
military establishment and extensive military industries on the economy was always
hard to capture precisely, not least because it was secret. The Soviet state budget for
1980 admitted to 17.1 billion rubles of military spending, or less than 4 per cent of the
national material product; after the collapse of the Soviet state, the true figure was
estimated retrospectively at 48.9 billion rubles, or more than 10 per cent. Authoritative
Western estimates gave figures that were twice that.18 In fact, the various channels of
funding for the military budget had been hidden from oversight for so long that even the
budgetary authorities had no idea of the true figure.19
Increases in production relied upon increases in capital and labour more than on
technological improvement or efficient reorganization. Production drew freely on the
17 Alain Bertaud, ‘The spatial structures of Central and Eastern European cities’, in
Sasha Tsenkova and Zorica Nedović-Budić, eds, The Urban Mosaic of Post-Socialist
Europe, 91-110 (Heidelberg: Physica-Verlag, 2006); Alain Bertaud, ‘Urbanization in
China: land use efficiency issues’, Working Paper (2007) at alain-bertaud.com.
18 Noel E. Firth and James H. Noren, Soviet Defense Spending: a History of CIA
Estimates, 1950-1990 (College Station, TX: Texas A & M University Press, 1998); Iu. D.
Masliukov and E. S. Glubokov, ‘Planirovanie i finansirovanie voennoi promyshlennosti v
SSSR’, in A. V. Minaev, ed., Sovetskaia voennaia moshch’ ot Stalina do Gorbacheva
(Moscow: Voennyi parad, 1999), 82-129.
19 Mark Harrison, ‘Secrets, lies, and half truths: the decision to disclose Soviet
defense outlays’, PERSA Working Paper no. 55 (2008), University of Warwick,
Department of Economics, at http://go.warwick.ac.uk/persa.
resources of natural environment. In 1985, for example, sulphur oxide emissions per
head of the population jumped by an order of magnitude as the observer crossed the
line from capitalist to communist Europe, although output per head was much lower on
the communist side.20 Measures of environmental quality were censored and the voice
of concerned citizens was suppressed.
Many people gained from Soviet-type modernization. The government invested
heavily in science, technology, education, and health. It directly employed and promoted
millions of people. Government officials, workers in important factories, residents of
important towns, and their families generally had privileged access to goods and
services, including to notionally public facilities in education and health care.
Outside the circle of privilege, consumers had to stand in line. Losses arising from
waiting time and forced substitution substantially diminished the real worth of goods
nominally available. At different times almost anything could be in short supply, from
housing and automobiles to sausages and sanitary towels. Communism in the European
style appeared to offer the dream of modernized consumption, but without consumer
sovereignty. In practice, consumers were continually threatened with relapse into the
acute shortages and rationing of communism’s darkest years.
The China deal
With the important exception of China, the experience of reform communism was
unsuccessful. The starting point was dissatisfaction with the results of the Stalinist
command economy, in which both the party and the people gradually lost confidence.
Officially sanctioned reforms were supposed to be the solution. In practice, power
sharing and the delegation of authority to managers had unintended consequences.
They were designed to put more pressure on managers and workers to exert effort, but
this often led to unrest which immediately switched the traffic lights to red. Other
unintended consequences included unpredictable changes in the pattern of demand and
the distribution of income, which also led to dissatisfaction. Except in China, where the
leaders managed the discontent and persisted with reforms, ruling parties tended to
grab power back from other potential stakeholders and reverse the reforms, to the
detriment of their own credibility. The result was a progressive loss of faith in the
capacity of the government to innovate solutions, which came on top of the original loss
of faith in the traditional model.
A by-product was increased toleration of sideline economic activity, including the
resort to unofficial markets to reallocate state products in ways not prescribed in
government plans. The American economist James R. Millar called this the ‘Little Deal’,
after the original ‘Big Deal’, Vera Dunham’s term for Stalin’s pact with the new Soviet
labour aristocracy.21 Under the Big Deal, Soviet workers that worked hard, gained
experience, and upgraded their skills were promised the rudiments of a middle class
lifestyle. The Little Deal was Brezhnev’s pact with workers and managers to permit
private trading and the private use of state-owned facilities on the side as long as it was
discreet and did not interfere with major important government priorities.
20 Kornai, The Socialist System, 179.
21 James R. Millar, ‘The Little Deal: Brezhnev’s contribution to acquisitive socialism’,
Slavic Review 44, no. 4 (1985), 694-706.
The sideline economy was a double-edged instrument. The activities of thieves and
private traders helped households to secure the commodities they desired. Trading on
the side could help factories obtain the materials and supplies necessary to fulfil their
plans. But officials and managers were corrupted, and work discipline, public morality,
and the legitimacy of state property were undermined.
In short, the failure of the communist states of Eastern Europe to catch up and
overtake the West is easily explained. Their polities were closed and authoritarian.
Their economies were overcentralized and unreformable. Corruption got out of hand. In
the endgame, insider interests ‘stole the state’.22
In contrast, China has grown rapidly over three decades, significantly closing the gap
with more advanced countries and levering hundreds of millions of people out of
poverty. The state has not been pulled apart, and the government has not had to
backtrack on reform. Yet the Chinese state remains authoritarian, secretive, and corrupt.
Economic life is still politicized. The essential ingredients of a decentralized market
economy – separation of the economy from politics, clear property rights, free and
enforceable contracts, and the rule of law – are still missing.
How has China squared the circle? After the death of Mao, China’s leaders felt their
way, by accident as much as by design, to a new deal within the party and society. More
radical than Stalin’s Big Deal, more ambitious than Brezhnev’s Little Deal, the China Deal
transformed the sideline economy into a legitimate (but not law-governed) private
sector, integrated into the system of regionally decentralized authoritarianism.
The deal was made first of all with China’s provincial leaders; these were given new
ways to contend with each other for advancement by promoting competing regional
models of economic enterprise, always provided these did not challenge party rule.
Then, China’s entrepreneurs were offered the chance to accumulate personal wealth by
competing with each other to serve the consumer directly in regional markets. But the
right to enter the market was restricted to those whose absolute loyalty was assured by
political connections. Without some external discipline, restricted access would create
large rents and threaten to destabilize the distribution of income. One source of
discipline was the competition among regional models, which forced China’s new elite
to accumulate rather than consume. Without fierce rivalry among provincial leaders, in
Chenggang Xu’s opinion, the Chinese government and economy would collapse.23
Another source of discipline was the world market, where Chinese firms were also
made to compete.
Finally, the China Deal embraced the poor. Hundreds of millions of people would be
allowed to migrate to successful regions and to rise out of abject poverty, provided this
did not lead to pressure for mass political rights.
The China deal radically extended the stakeholder concept of a communist society.
New stakes were granted in unprecedented number; at the same time, the government
retained the senior stake by maintaining a large public sector and withholding secure
private property rights. Competition among entrepreneurs harnessed the private sector
to the objectives of national economic modernization. Rivalry among provincial leaders
broke resistance to continuous policy reform. Thus, China’s modernization has
22 Steven L. Solnick, Stealing the State: Control and Collapse in Soviet Institutions
(Cambridge, MA: Harvard University Press, I998).
23 Xu, ‘Fundamental institutions’, 1141.
proceeded without universal market freedoms, third-party enforced property rights, or
the subjection of the rulers to the rule of law.
In 2005 for the first time China’s private sector exceeded the state sector by value of
output. China’s private sector has proved consistently more innovative than its state-
owned enterprises and (except in the case of state monopolies) more profitable.24
Private firms have made higher profits despite the fact that state-owned enterprises
have benefited from nearly exclusive access to bank credit and a valuable credit subsidy
arising from implicit government guarantees. The profit gap implies, however, that
China still has too much productive capital locked up in the state sector. Moreover, there
is a question mark over whether China’s private firms can continue to exploit the
opportunities of the information revolution, given oppressive and corrupt regulation,
the relatively small size of most private firms, and shortfalls in China’s human capital.25
China’s experience with political modernization suggests circumstances in which the
ruling party’s desire for ‘stability of the rear’ might hinder continued policy reform. In
1989, faced with the overthrow of communism in Eastern Europe, the Chinese
communist party decisively rejected the so-called ‘fifth’ modernization, democracy.
China’s rulers remain above the law. As Xu has pointed out, in China ‘regions have no
inherent power, and regional power is granted by the central authorities’.26 Whatever
has been granted can be confiscated. The same can be said of the personal rights of all
China’s junior stakeholders, including private proprietors.
Can China’s modernization continue beyond the ‘middle income trap’? By the 1970s
most countries of Latin America and the Middle East had risen from low to middle
income status, as China has now done, but none went on to join the club of high income
countries.27 As we have discussed, movement towards the global frontier requires
policy reform to continue, and this must continually infringe on established economic
and political interests. The chance that at some point defensive coalitions will form in
China that have the power to block further change, and thus halt the process of catching
up, remains high.
24 The World Bank, China 2030: Building a Modern, Harmonious, and Creative High-
Income Society (Washington, DC: The World Bank and Development Research Center of
the State Council, the People’s Republic of China, 2012), 111.
25 China’s issues today have parallels with Italy’s in the recent past; on the latter see
Crafts and Magnani, ‘The golden age’.
26 Xu, ‘Fundamental institutions’, 1087.
27 The World Bank, China 2030, 12.
Figures
Figure 1. Real national income per head, Russia and USSR, from 1885 to 2008
Source: Andrei Markevich and Mark Harrison, ‘Great War, Civil War, and Recovery:
Russia’s National Income, 1913 to 1928’, Journal of Economic History 71, no. 3 (2011), p.
693.
Notes: All figures are measured in international dollars and 1990 prices.
400
800
1,600
3,200
6,400
1885 1905 1925 1945 1965 1985 2005
GDP/head, international dollars and 1990
prices
Figure 2. Real national income per head: selected countries and regions from 1950 to 2008,
at 1990 prices and international dollars
Source: Data by Angus Maddison at www.ggdc.net/maddison.
Notes: All figures are measured in international dollars and 1990 prices. The two
vertical lines are drawn at 1974 and 1990. With a logarithmic vertical axis, per cent
gaps are proportional to vertical distance and per cent growth rates are proportional to
slopes. The West European 12 are Austria, Belgium, Denmark, Finland, France, Germany,
Italy, Netherlands, Norway, Sweden, Switzerland, and the United Kingdom. The Central
and Eastern Europe 7 are Albania, Bulgaria, Czechoslovakia, Hungary, Poland, Romania,
and Yugoslavia. The ‘communist average’ covers the former Soviet Union, China, the
CEE-7, and North Korea from 1950 to 1989.
400
800
1,600
3,200
6,400
12,800
25,600
1950 1960 1970 1980 1990 2000
USA
WE-12 average
CEE-7 average
Former Soviet Union
Communist average
China
Tables
Table 1. ‘Overtake and outstrip the advanced countries economically’: real national
income per head of selected communist countries and regions in selected years, per cent of
market-economy countries and regions
1950-54 1970-74 1983-87 2003-07
Soviet Union, per cent of:
USA 28.8 36.6 33.1 ...
Western European 12 57.1 51.7 46.3 ...
Central and Eastern
European 7, per cent of:
USA 22.0 30.1 28.7 ...
Western European 12 43.5 42.5 40.2 ...
China, per cent of:
USA 5.1 5.1 7.3 18.4
Western European 12 10.0 7.2 10.2 26.7
Source: Data by Angus Maddison at www.ggdc.net/maddison.
Notes: Figures given are five-year averages. All figures are measured in international
dollars and 1990 prices. The West European 12 are Austria, Belgium, Denmark, Finland,
France, Germany, Italy, Netherlands, Norway, Sweden, Switzerland, and the United
Kingdom. The Central and Eastern Europe 7 are Albania, Bulgaria, Czechoslovakia,
Hungary, Poland, Romania, and Yugoslavia.
Table 2. Three regions divided by the Cold War: real national income per head, selected
years
1936 1950 1973 1990 2008
West Germany 4,570 4,280 13,147 18,691 …
East Germany 4,781 2,796 7,695 5,101 …
Per cent of West 105% 65% 59% 27% …
Finland 3,729 4,253 11,085 16,866 24,344
Estonia* … … 8,657 10,820 19,951
Per cent of Finland … … 78% 64% 82%
South Korea 1,437 854 2,824 8,704 19,614
North Korea** … 854 2,824 2,841 1,122
Per cent of South … 100% 100% 33% 6%
Sources: Data by Angus Maddison at www.ggdc.net/maddison, except Germany, East
and West, within 1990 frontiers from Angus Maddison, The World Economy: A Millennial
Perspective (Paris: OECD), p. 178.
Notes: All figures are measured in international dollars and 1990 prices.
* Angus Maddison, The World Economy, pp. 208-209, noted that ‘In 1940 North
Korean GDP per capita was nearly 50 per cent higher than in the South …so it seems
reasonable to suppose that 1950 North Korean per capita GDP was at least as high … I
have assumed that per capita GDP was the same in the North as in the South from 1950
to 1973, with no progress to 1991. Thereafter, North Korea stopped receiving Soviet aid,
and its per capita income has fallen a great deal.’
** Timo Myllyntaus, ‘Standard of living in Estonia and Finland in the 1930s’, in
Proceedings of the Estonian Academy of Sciences, Humanities and Social Sciences 41, no.3
(1992), pp. 184-191, compared nominal wages, food prices, and the diffusion of
consumer durables in Finland and Estonia between the wars. Without endorsing any
particular figure, he concluded that ‘at the end of the interwar period, the level of real
earnings per capita was higher in Finland than in Estonia. The difference was then not
so huge as it is nowadays [circa 1990], but presumably it was so great that
contemporaries could not avoid noticing it.’
Table 3. Degrees of socialization: selected countries, 1953 and 1960, and per cent
Per cent of
agricultural land
Per cent of national
income produced
1953 1960 1960
Soviet Union 94 97 100
Bulgaria 56 91 100
Czechoslovakia 54 87 99
Hungary 39 77 91
Albania 13 85 88
East Germany 5 90 85
Romania 21 84 83
Yugoslavia 37 10 73
Poland 19 13 63
Sources: Brus, ‘Institutional change’, 9, 80, 83, except USSR from TsSU SSSR, Narodnoe
khoziaistvo SSSR v 1960 godu. Statisticheskii ezhegodnik (Gosstatizdat: Moscow, 1960),
82, and Narodnoe khoziaistvo SSSR. 1922-1972. Iubileinyi statisticheskii ezhegodnik
(Statistika: Moscow, 1972), 240. China is not shown but, according to Carl Riskin,
China’s Political Economy: The Quest for
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