The End of Communism in China

Capitalist contractWhen did China start being a capitalist?

It’s pretty clear after spending any period of time in China that it is no longer a communist country in a tradition economic sense. Long snaking lines at every store for simple household goods, coupons and ration books instead of money, or behemoth state ministries controlling every aspect of economic life no longer exist in China and have not for a least a generation now. 

But when did this start? How do you change such a dramatic course in economic policy without causing the entire collapse of the economy or at the very least the ruling communist party? When did China start being a capitalist?
 
This moment when communism in China ended can in fact be pinpointed precisely or more accurately ‘pinpricked’ precisely, for the death warrant of central planning was truly written in the blood of a group of brave peasants living in Anhui province. Their actions, in a new climate of economic experimentation, propelled China in a new direction towards markets and prosperity and away from famine and desperation.
 
Communist China in the late 1970s
By the time Mao Zedong died in August 1976, China was arguably in its five-minutes-to-midnight moment; never had the country reached such a low point in its wealth, prestige, and power. A decade of Cultural Revolution had left the nation on the edge of collapse. The state itself had almost been destroyed completely and as the state totally controlled the economy, this was no small issue.
 
Productivity and output in the agricultural section of the economy was still a major issue. Only a decade and a half on from the Great Famine, China was still unable to feed itself and wasted an atrocious amount of manpower on poor crop yields. The problem, as even the peasants recognized it, was the way farming was officially organized by the state.
 
The Commune system
During the Great Leap Forward program beginning in 1958, the state re-organized the rural economy into thousands of communes that has distinctive features not seen in Chinese agricultural perhaps ever. 
 
Firstly, all property especially land was now held collectively by the commune rather than by the individual farmers who were restricted to owning their homes and a few animals. Second, communes became units of accounting in the economy with communes able to purchase tools and buy credit on behalf of the commune this further disempowered the farmers. Thirdly, income from agriculture was to be distributed to the members of the commune based on “work points” given usually by the senior cadre of the area.[1]
 
This of course led to immediate and systematic abuse not to mention disincentives to harder work or to increase productivity. Why bother working harder when you got nothing out of it? During the Cultural Revolution collectives were pressured to use the “Dazhai system,” under which each worker evaluated his own work in front of village meetings and then invited public comment and criticism.[2] Again the incentives of the commune system pushed production towards achieving the minimum so as not to be cheated out of the rewards for harder work. 
 
Farmers would show up to work each morning to get their work point but then have no reason to actually work; they had achieved their goals just by showing up. This disincentive to work multiplied throughout the Chinese economy means that within only a year, China wasn’t producing enough food to feed everyone. Only after the Great Famine of 1958-61 was the commune system able to stabilize production because of slight reforms that broke down their size. But the rural economy remained inefficient and farmers were poorer than they were before the Revolution.
 
The household responsibility system
This leads us nicely to the small village of Xiaogangcun (小岗) in Anhui one of China’s poorest provinces. Even in 1978, families in the village had to resort to begging on the highways in order to get enough food for their families. They were still using tactics of the Great Famine to get food like boiling bark from trees and eating grass. The commune system was simply not working; not enough food was being produced and the little that was, was being taken to the cities to feed the urban populations.
 
So one night eighteen farmers gathered in a small house in Xiaogangcun and discussed what they could do. They all agreed they would do something that in China at the time was considered one of the greatest criminal acts you could do: be a capitalist. All the farmers agreed they would divide up the commune’s land into individual plots and give then to each household like farming had worked before the Revolution. Each farmer would be responsible for his own plot and would keep all the benefits from the crops he produced.
 
The problem was this was capitalism and a decade of punishment had just been given out to anyone who had even remotely done anything involving money or private property. They knew the consequences would be harsh if they were caught. So again in true capitalist form they drew up a contract. 
 
In this contract they all agreed should one of them be taken to prison for the high crime of using the capitalist road, the others agreed to take care of his family financially. They all held this to be such a sacred oath they signed the contract with their names and with their own blood.
 
In one year grain output increased to 90,000 kilograms, over six times as much as the previous year. The per capita income of Xiaogangcun climbed to 400 yuan from 22 yuan.[3] Of course this activity caught the attention of the local party officials but in a new political climate of openness and experimentation the villagers’ system was praised and soon cadres who had praised it were getting praised themselves and promoted.
 
By 1982 a nationally defined program of contracting land to households, known as “household contracting” or the “household responsibility system” emerged as the clearly preferred organizational system in China to replace the laughable commune system. By the end of 1982 more than 90% of China’s agricultural households had returned to some form of household farming as Chinese farmers had known for centuries.[4]
 
From small beginnings in a tiny yet brave village in the middle of Anhui province, China began its economic reforms that would take it from one of the world’s poorest nations to the second largest in 35 years. This was a capitalist revolution written in the blood of the workers but one in which they lived to see the rewards and the transformation they helped begin. 

[1] Barry Naughton (2007) The Chinese Economy – Transitions and Growth, MIT Press: Cambridge, MA, pp.235-7
[2] Barry Naughton (2007) The Chinese Economy – Transitions and Growth, MIT Press: Cambridge, MA, pp.237
[4] Barry Naughton (2007) The Chinese Economy – Transitions and Growth, MIT Press: Cambridge, MA, pp.241
 

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