[MUSIC] Let's look at China's political economy on the eve of reform, which really is sort of the end of the Mao era. So, first, if we look at rural China and the status of agriculture, what we find is within China's countryside, there was really limited support for collective farming. There were some and we'll talk about it when we talk about de-collectivization. But particularly in areas where the famine had been very strong, Anhui, Sichuan, Hunan, those kinds of areas, the support for collectivization and for the collective farming was really quite weak. In the 50s, all private firms in the countryside, including hotels that had been set up, restaurants, food companies, feed companies, grain stores, all of them had been collectively owned after 1956, and so on the eve of reform, they were still collectively owned. What we also found is that very sharp constraints on off-farm labor. That means villagers could not go into the cities. They couldn't do various kinds of orchards, different kinds of things that did not involve planting. And there was a heavy emphasis on grain production and grain self-sufficiency, so there were really quite limited forms of crops. And this really meant that the income for farmers and any opportunity for income and growth outside of farming was extremely limited. And we actually know now that in 1976, on the eve of the reform, the possibility of famine had begun to re-emerge in Sichuan and Anhui Province, which were two of the provinces that had been hit so badly during the great famine. We also saw an urban bias, which is actually quite interesting because many people would have thought that Mao's policies would have favored the countryside. But growth in the countryside was really agricultural growth, was really on average only about 2%, for much of this period, it wasn't so terrible. But it certainly wasn't enough to drive the economy. A second component of this bias was what's known as China's Hu Kou system. Hu Kou meaning a household registration system. And some scholars have referred to it as China's own kind of apartheid system where the peasants were relegated to the rural areas and their income had to come from the rural area. They were not allowed to go into the cities, they were not allowed to work in the cities, and this really favored urban workers over rural workers. And the bias was really quite extensive. It included subsidized grain for people in the cities. Food was cheaper. Housing prices, the rents were very, very cheap. When they retired, the state-owned workers all got benefits. Peasants didn't get that kind of thing. The schools were better in the cities than they were in the countryside. So the urban youth could get promoted and get better educations. Public healthcare, there was a good coverage in the city. There was some coverage in the countryside. But really, public healthcare was better in the cities. The doctors, the hospitals were all better in the cities. And the large state on enterprises worked as a kind of welfare unit where they subsidized, supported, ran all kinds of programs for people who worked in those enterprises. Now, in terms of industry on the eve of reform, there was really an over-investment in heavy industry, and this had really gone back to the 1950s when China copied the Soviet model. What that meant, though, was that the employment opportunities that would come from promoting exports through light industry, which is really the natural benefit of a low income economy, China never took advantage of that, so it was not able to expand the labor force as quickly because of the kind of industry that it promoted. Second, enterprises, because of the plan, they could never be sure that they were going to get what extra resources they needed. If you needed repairs, could you go somewhere else and get repairs to your equipment? Just stuff like that. That there weren't those kinds of repair companies around so every enterprise tried to be self-sufficient. And what people often talked about was that they hoarded goods. They held on to those goods. Whatever materials, and a lot of it, I remember when I was a student and we went traveling around and looking at factories in China, you could often see rusted pieces of steel sitting outside of factories. And so there was also very little specialization for factories. Each factory then tried to have their own specialization, special teams within the factory to do all kinds of repairs. There was very little development of the service sector. China's still trying to recover from that. It's improved dramatically over the last 10-15 years. But, really, service sector, what I remember, when I was, again, a student in China, one of the two only service sectors that we really saw that were pretty active were barber shops, these were private, haircuts and bicycle repairs. There was also just too much industry in inland areas of China which were expensive, hard to ship the equipment into those parts of China. This was primarily in provinces like Sichuan and Guizhou. Now, this is a really interesting phenomenon, because this is the kind of external factors affecting how China developed internally. And once the United States started to build up in Vietnam after 1964, you have what's called the Gulf of Tonkin event. After the United States starts its build-up in South Vietnam, the Chinese get very nervous and they come to believe that maybe the United States is going to invade North Vietnam and then may come up into China, so they decided to move a lot of their factories from the coastal areas further into the inland areas. And the same thing happens after 1968, 1969 when there's a border skirmish, or almost a border war, with the Soviet Union up in China's northeast along the border between the Soviet Union and China, and that led the Chinese again to shift the investment, over the next couple years, into these provinces. So here you can see a figure that shows dramatic increases in investment in Sichuan and Guizhou provinces during the first bump, is really 1964, 65, 66. So this is a big jump after the US moves into South Vietnam and the second bump is really after 1968, 69 after the border war with the Soviet Union. And the percentage up to 15% of national investment actually goes to Sichuan Province. And so when the reform era begins, there are millions of people. Workers up in the hills in Sichuan, Guizhou. Factories up there, auto plants up there. And these have to be moved into the coastal areas to make them much more efficient and it's a huge burden that China had to take on. Now, in terms of labor policy before 1978, as I've said before, villagers could not move into the cities. They could not move into non-agricultural labor where they could've earned higher incomes. There was a highly egalitarian and highly sexist payment system, particularly in the countryside. But even in the cities, many of the payments were based on trying to get people to work hard for love of China. The gap, I remember, was between something like 30 yuan a month for beginning workers, 60 yuan a month sort of for average workers, and then for the senior workers, it might go up to 90 yuan a month. But still, quite egalitarian and quite limited, and the real gap that would develop between families was what we would call labor dependency. Right? And what that means is the amount of people, the labor, the number of people working in your family versus people who weren't working in the family. So children and older people, the ratio of those two groups would really have a lot to say, have a lot of influence on each household's income and this really created the major form of inequality within China. The last key component that I would talk about of the Mao era on the eve of reform is that foreign trade really played a minuscule role in China's overall economy. It was not seen as a force for economic growth, and it's interesting because as we'll see, the reform era then moves to exports as a growth. But there's exports for the purpose of importing equipment and technology that China needs to buy. Second, it was extremely centralized. The central government got all the benefits. There was 12 major trading companies that controlled all of the trade within China. Enterprises themselves had absolutely no incentives to export. They got them no benefits. Just was a lot of headaches because you'd have to try and meet foreign expectations and foreign demands. And it doesn't say this on the slides but almost all of China's trade actually took place in Canton, in the Canton Fair. And people would go down, foreigners would come in, and they would meet with trading companies and never meet the factory who was actually producing the goods that they would then be buying and trying to sell overseas. There was an over-valued exchange rate, right? The value of the renminbi was too high, so in many ways, Chinese goods were not competitive on the global market, and domestic prices were just not in line with global prices. So these 12 trading companies could sort of balance the difference between different kinds of resources where they could overcharge for some, undercharge for others, which really had nothing to do with the global prices, and then try and create their own subsidies for imports. And finally, there was just an enormous degree of what we call autarky. Right? China was just not engaged in the global economy, not interactive really at all, or very, very minimally. It had been interactive with the Soviet Bloc in the 1950s into the early 1960s, but during the cultural revolution, really, foreign trade and economic interaction with the outside world had really come to a halt.
