S11: Planned Economy

Seven paradoxes of the socialist state: Nobody works, but the plan is always fulfilled. The plan is fulfilled, but the shelves in the stores are empty. The shelves are empty, but nobody starves. Nobody starves, but everybody is unhappy. Everybody is unhappy, but nobody complains. Nobody complains, but the jails are full.

China

• 1949: Founding of the People’s Republic of China
• 1953: First Five Year Plan
• 1954: First Taiwan Strait Crisis
• 1957: Anti-Rightist Campaign
• 1958-1959: Great Leap Forward, followed by worst famine in human history
• 1966: Cultural Revolution

World

• 1950: Korean War
• 1954: French troops defeated at Dien Bien Phu
• 1955: Bandung Conference
• 1956: Nikita Khrushchev issues secret speech against Stalin.
• 1956: Hungarian Revolution
• 1960: Sino-Soviet split

• Angang: How was China’s largest industrial state-owned enterprise run?
• Planned economy: How did it work in practice?
• Who was the working class in socialist China? How were they organized?

Soviet de-industrialization: Autumn 1945

• The Soviet military removed machines from Japanese industrial plants and sent to the Soviet Union.
• Physical infrastructures remained largely intact.
• Factories and mines in Anshan lost 60–100% of their annual production capacity.

Chinese Take-over: 1946-1949

• 1946: The Nationalists took over most of southern Manchuria’s industrial centers
• 1947: Former Japanese factories in Manchuria produced 49 percent of the industrial output.

• 1946: The CCP created the Northeastern Administration Committee (NAC).
• The NAC, led by the CCP regional head Gao Gang, served as a model for regional administration in the rest of China.
• 1947: The CCP created first economic plan for industry.
• Manchuria became the CCP’s experimental site for Soviet-style economic planning policies.

Three major campaigns:

• Liaoshen Campaign (Sep 1948 – Nov 1948): Control of Manchuria
• Huaihai Campaign (Nov 1948 - Jan 1949): The north of Yangtze River
• Pingjin Campaign (Nov 1948 - Jan 1949): End of GMD dominance in North China; take-over of Beijing and Tianjin

1949-10-01: Founding of the PRC

• In the first half of 1951, Manchuria produced 57.2% of China’s heavy industry output.
• In 1952, Manchuria produced 40.6 percent of China’s electricity, 33.2 percent of coal, 39.4 percent of cement, 69.9 percent of steel, and 55.1 percent of petroleum.
• 40% of industrial investment during the First Five-Year Plan occurred in Manchuria.

Pillars of control:

• Neighborhood organization
• Household registration
• Work unit
• Personal dossiers

• 1955: Permanent system of population registration established
• Linchpin for administering urban China, with identity and services – food, employment, health care – tied
• Differentiated citizenship: Urban vs. Rural divide institutionalized

• From cradle to death: Housing, goods, services formerly provided by private establishments
• Locus of personal identity: Self-contained communities with near permanent employment
• Organs of political and social control: Organization of political study, Approval of marriage diverse, Travel authorization, etc.

• Who runs Anshan? Specifically, what are dual lines of control?
• What issues did the factory face? What were the main causes?

• State ownership of all productive assets and financial sector
• Collective farms: Sell food quotas to the state at low prices
• Extracting surpluses out of the countryside to promote urban industry

• Market demand and financial markets no longer drivers of the economy
• Economic activity driven by “production demand”
• “Unproductive demand” – e.g. consumer goods – suppressed
• Key goal: capital formation at accelerated pace

Assignment:

• You are the management team of a glass factory in Manchuria in the 1950s.
• The government provides resources and a production quota for sheet glass.
• You can produce glass in various thicknesses and weights.
• Thicker glass is easier to produce but weighs more; Thinner glass is harder to produce but weighs less.
• To fulfill the quota of 6 million, you have three production options based on quantity (sheets of glass) and weight: 250,000 (12 lbs), 500,000 (6 lbs), or 1,000,000 (3 lbs).

Questions:

• How much will you execute the plan? Choose one of the three options.
• How much will you actually produce? Why?
• What are your main goals in production?
• How will you work with other stakeholders – banks, horizontal and vertical authority, workers, etc.?

• Shortage economy: Demand constrained (market economy) vs. resource constrained (planned economy)
• Soft budget constraint: System designed to maximize productive investments leads to wasteful use of resources; inefficient projects keep on getting subsidies and operating due to government assistance.
• SOEs and local governments disregard cost-benefit analysis, accumulate debt, and exploit national resources
• Consumer austerity: rationing

Walder

• Comparative sociological argument about industrial authority
• Theoretical explanation of political legitimacy and social stability — clientelist party–activist ties, diffuse personal networks, and enterprise paternalism as structural sources of consent

Hirata

• Detailed historical/organizational case study of a major SOE (Angang)
• Institutional mechanics of bargaining, dual control, and organizational conflicts

• Stalin on socialist China: “After victory, the Chinese government will be a national revolutionary and democratic government rather than a communist one”
• Mao on the Soviet Union: “Big power chauvinism”, and fear of revisionism and capitalist restoration
• Tension between Soviet model of hierarchical control and CCP base area practices

Mid-1956 to mid-1957

• Time of consolidation and adjustment to a new economic system.
  
• Mao Zedong’s “Ten Major Relationships” speech showed a more practical approach to political and economic issues.
  
• After Khrushchev’s secret speech criticizing Stalin in Feb 1956, Mao launched the “Hundred Flowers” movement to encourage diverse opinions.

After 1957

• By mid-1957, the Hundred Flowers movement ended following widespread criticism.
• After purges against party critics, economic authority was given to cadres eager to follow Mao’s directives and prove they were not “rightist.”
  
• Mao aimed for China to surpass the UK in fifteen years, inspired by Khrushchev’s goal to surpass the US.

Building communes

• The rural people’s commune originated in Henan province; Mao Zedong praised the experimental Qiliying Rural People’s Commune in August 1958.
• The focus of commune and national leadership was on increasing grain and cotton production, with grain as the “key link” in agriculture.
• A competitive process to form communes ensued: 700,000 co-operatives consolidated into 26,000 communes, each averaging 4,000-5,000 families.

Rural construction campaign

• In the winter of 1958-1959, hundreds of millions of farmers moved dirt and rock to build dams, irrigation, and smooth crop land.
• This construction work interfered with farming and crop production.

• In 1958, most enterprises were transferred from central control to local governments.
• Mao initiated a campaign to boost iron and steel production using small, local furnaces.
• This expansion lacked coordination, leading to unusable products and missing inputs. The chaos was also exacerbated by unreliable statistics.

• Inflated numbers: Grain harvest in 1958
  • Official figure: 375 million tons
  • Actual figure: 200 million tons, 2.5% increase from previous year
• By April 1958: Widespread food shortages and riots
• By early 1959: Famine spreading nation-wide
• 1960: Soviet Union withdrew 1,400 specialists from China.

Grain importation

• China began importing large amounts of grain in 1961 after previously exporting it.
• While grain imports were mainly for urban residents, it allowed for reduced quotas for farmers.

Return of Individual Production

• Management of crop production was passed down to the production team level within the commune system.
• In some areas, private plots and free markets were restored, with production determined by individual families.

Devolution of planning

• Planning and coordination occurred at provincial and lower levels until reforms in 1984; only critical sectors were managed nationally.
• Urban industrial employment did not recover to pre-Great Leap levels despite a near doubling of urban employment between 1958 and 1960.

Reduction of urban population

• The government reduced the urban population by forcing 14 million back to the countryside.
• The hukou system, registering households as urban or rural, restricted urban residency and created a two-tier citizenship.
• Urban employment growth in the 1960s and 1970s was driven by employing urban women, who increased from 13.5% of the workforce in 1957 to nearly half by 1979-1980.

• China created the Third Five-Year Plan (1966-1970) in 1965, maintaining decentralized industry management regulations.
• The Great Proletarian Cultural Revolution, starting in 1966, caused the collapse of planning agencies.