Book recounts debates at the beginning of the Chinese miracle – 07/15/2023 – Celso Rocha de Barros

The Boitempo publishing house has just published a booklet: “How China escaped shock therapy”, by Isabella M. Weber. It is a story of the debates among Chinese economists in the 1980s about what strategy China would adopt in its transition to the market. If you want to know how China got to where it is, this is a must-read.

It is inevitable to compare the extraordinary success of the Chinese economy in recent decades with the collapse of Russia in the same period. Weber starts from the idea, common in the specialized literature, that differences in economic strategy explain this difference in performance.

Its focus is on price liberalization policies, which under socialist planning were set by the government. Russia adopted “shock therapy”: it released all prices in a very short period. China adopted a dual system in which, for a longer period, controlled and free prices coexisted.

However, as the author notes at the top of the book, China almost implemented shock therapy in the 1980s. To reconstruct this dispute, Weber interviewed survivors, had access to censored texts and reconstituted classic (and very good) debates in the field. socialist. The discussion on the positions (and possible inconsistencies) of the Hungarian economist Janos Kornai –a very important figure– is one of the highlights of the book.

According to the author, opponents of “shock therapists” were not opposed to the transition to a market economy. In fact, they disagreed with the idea that a price shock could work before there were capitalist companies that, because they depended on their profits to survive, were forced to be guided by the price mechanism.

Until Chinese companies were reformed, they argued, liberalized prices would only generate inflation, high profits for monopolies and widespread inefficiencies. The dual price system would be the best solution, not compared to an abstract market economy model, but among the alternatives available to China at the time.

The book ends with a tragic plot twist. Economists who banned shock therapy in the 1990s were disgraced for supporting the Tiananmen Square protests. Meanwhile, some of the advocates of a proposal that could have compromised Chinese reforms thrived in the next decade, when the hardest part of the transition had been made.

The dual pricing mechanism should not be the only explanation for China’s success. Weber’s book points to a more general orientation of building a new system on the margins of the old one, which has been successful. In the mirror image of Chinese success, the story is also more complex: the statistical correlation between shock therapy and collapse is almost entirely generated by the cases of countries that, at the beginning of the process, were one, the Soviet Union. State collapse certainly must have been part of the story.

But Weber could certainly argue that if the USSR wanted to survive, it should choose a better economic strategy.

PS: Delfim Netto appears at a decisive point in history. For those who want to know more about relations between Brazil and China, I recommend “Brazil-China relations in the 20th century”, by Maurício Santoro (Springer, 2022).

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