Reviewing "Unlikely Partners" by Julian Gewirtz

How did Chinese reformers gain the knowledge necessary to completely transform their economy in the 1980s? An answer could be found in Julian Gewirtz's fascinating account of China's "reform and opening" phase, beginning from the death of Mao Zedong in 1976 to the enshrinement of China's "socialist market economy" in its constitution in 1993. His particular emphasis in this book is on the contribution to China's economic reforms of experts and ideas from around the globe, describing how these foreign influences aided China in charting the path that it did throughout the 1980s.

As such, the book portrays the dynamics between three main groups: Chinese reformers, who advocated for market reforms to augment the socialist planned economy, Chinese conservatives, who wished to preserve the primacy of the plan over the market, and foreign economists, who provided the ideas and techniques that the reformers seized upon to make the changes that they eventually did. An overarching theme is that the reform process was never smooth and inevitable, even after Deng Xiaoping rose to paramount leadership in December 1978. The 1980s were riddled with debates and political contestation as reformers and conservatives attempted to make their case.

Foremost among the reform camp was Zhao Ziyang, who served as premier of the People's Republic of China (PRC) from 1980-1987, then general secretary of the Chinese Communist Party from 1987-1989. In August 1978, Zhao accompanied then-premier Hua Guofeng on a trip to Yugoslavia and Romania, in a search for new ideas to boost China's economic growth. Hua took interest in "Yugoslav enterprise management, which stressed self-management and enterprise autonomy", and instructed Zhao to implement reforms of this nature in Sichuan province, where he was then party secretary (p.40). Zhao's success in Sichuan prompted Deng Xiaoping to elevate him to premier in 1980.

Foremost among the conservatives in the book was Chen Yun, a party elder who held a key role in economic management during the Mao era. Chen was "a consistent advocate of incorporating market mechanisms into the socialist planned economy", yet he maintained that planning should remain as "fundamental and predominant" with markets a "supplementary and secondary" addition (p.46). He was widely regarded as the second most powerful person in China during the 1980s and early 1990s.

In addition to numerous forays abroad, including the aforementioned trip to Yugoslavia and Romania, Chinese reformers invited a wide array of prominent foreign economists to China to teach Chinese economists the ideas and techniques that they had long avoided for fear of being branded a "rightist" or "bourgeois liberal" during the Mao era (p.21).

One of these was Czechoslovak economist Ota Šik, a reformer who was vice premier and economics minister during the 1968 Prague Spring, a period of political and economic liberalisation that was quickly crushed when the Soviets sent half a million Warsaw Pact troops to occupy the country. Šik was a fierce critic of "the directive system of planning" in command economies, which he saw as "inefficient and irrational", concluding that "it is therefore essential for a real market to function as a continual criterion and corrector" of the inefficiencies and errors of planning.

Šik's ideas for reform earned him an invitation to Beijing in March 1981. In a series of lectures, he contended that "to automatically equate the market with capitalist relations is an error", an ideological defence that would emerge as vital for reformers throughout the 1980s. Furthermore, he advocated price reform as "the primary step of reform of the economic system". He believed that "the goal of price reform is a complete transition to free-market prices", but as an intermediate step, to have a "transitional two-track price system in which the state continued to set a guidance price but allowed enterprises freedom to sell goods within limits of the state-set price".

Šik's ideas on price "resonated strongly with China's situation", seeing as "prices had been essentially frozen for over a decade [by 1980] ... [hence] incentives and information were profoundly distorted" (pp.89-93). Price decontrols would emerge as an important element of the reform process, such that "by 1999, 95 percent of retail commodities and approximately 85 percent of both agricultural commodities and producer goods would be sold at market prices" (pp.249-250).

Another Eastern Bloc contributor was Włodzimierz Brus, an advocate of market reforms in Poland before moving to Oxford's Wolfson College in 1968 amid a rising tide of antisemitism in Polish politics. Visiting China in December 1979/January 1980, Brus made the case for another major current in Chinese reformist thought: enterprise reform. He began his lectures by distinguishing three levels of the economy: "macroeconomic decision-making, enterprise decision-making, and individual and household decision-making". He then presented four models of the socialist economy: ""war communism", in which all three levels were centralized; the "centralized model", in which household decision-making was decontrolled; the "planned economic model with market mechanisms", in which enterprises were also decontrolled; and "market socialism", in which all three tiers of making were decontrolled".

Brus argued strongly for the third model: the "planned economic model with market mechanisms", stressing that China's enterprises needed "greater autonomy, with latitude to be more responsive to market dynamics" (pp.65-68). This establishment of a goal model, a system to aspire to, was significant because, contrary to what may be assumed, China's reformers had hitherto had no end-goal in mind. As Zhao Ziyang wrote in his memoirs, "My earliest understanding of how to proceed with reform was shallow and vague ... I did not have any preconceived model or a systematic idea in mind" (p.42). Brus helped provide that systematic idea, especially with regard to enterprise autonomy.

Source: Xinhua News Agency

The city of Shenzhen in Guangdong province, southern China. This enormous metropolis of 12.5 million people was established in 1980 as China's first special economic zone, a region where the planned economy was replaced by more free-market-oriented economic policies.

The sheer extent to which Chinese reformers were receptive to alien economic ideas was revealed when Beijing sent an invitation to Milton Friedman, the firebrand advocate of free-market ideology, who visited in the autumn of 1980. Friedman himself deemed the invitation "a phenomenon that I find almost literally incredible", though was sought after by China's younger reformers for his alleged expertise in fighting inflation, at a time when its spectre was looming over China's changing economy (p.84). The visit, perhaps inevitably, was "met with exasperation on both sides" (p.87), with intense ideological confrontation between Friedman and the Chinese economists. Yet despite this, incredibly, Milton Friedman was invited to China yet again in September 1988, when price decontrols had ignited a bout of soaring inflation (pp.210,211).

In 1985, this attitude of openness and cooperation culminated in what was perhaps the most extraordinary and significant gathering of all; a conference of prominent Chinese and foreign economists on a river cruise aboard the SS Bashan. First to speak was James Tobin, an American Nobel laureate in economics who was sought after for his neo-Keynesian focus on government intervention. He presented ways in which balance and stability in the economy could be preserved using techniques of "macroeconomic management", which could supplant direct administrative control to an extent. He described how a developed central bank could enable China to conduct monetary policy, and demonstrated how an expansionary policy could trigger a "multiplier effect", as well as how a contractionary policy could tame inflation (p.144,145) (The idea of the "multiplier" eventually influenced the approach of vice premier Zhu Rongji in tackling problems of widespread debt in the economy in late 1991 (pp.242,243)). Incidentally, one of the participants in the conference was Zhou Xiaochuan, who would go on to serve as governor of the People's Bank of China - the central bank - from 2002 to 2018.

Also speaking in the conference was Hungarian economist János Kornai, who drew from Hungary's experience to argue that China's target model should be one of "market coordination with macroeconomic control": enterprises should be rewarded or penalised depending on their "price responsiveness", and be given hard budget constraints such that they could not continue to rely on paternalism from the state (p.148).

The import of ideas from Tobin and Kornai directly influenced the work report of the CCP's Thirteenth Party Congress in November 1987, where Zhao asserted that "we must gradually shrink the scope of compulsory plans and gradually transform to a management system of primarily indirect management", defining the new system to be one where "the state manages the market, and the market guides the enterprises" (p.191).

This is only a brief snapshot of the exchange of ideas that Gewirtz describes in this book. As his narrative shows, the import of foreign economic ideas has been hugely influential in guiding China's reform and opening in the 1980s and 1990s. Why is it, then, that this story has long been under-appreciated?

In his conclusion, Gewirtz provides two reasons, one from the Chinese side and one from the Western side. For its part, the Chinese Communist Party strives to portray the ideological and economic developments of the past few decades as entirely home-made, "grown out of the soil of China", in the words of foreign minister Wang Yi (p.273). This is fuelled by the CCP's avowed role as a guardian of the Chinese people against the efforts and ideas of "hostile foreign powers", a nationalist idea that has functioned as the CCP's primary claim to legitimacy since the Tiananmen Square massacre of 1989 (according to historian John Garver, read "China's Quest"). Therefore, "in the face of this patriotic narrative it could be seen as a slight to shine a light on the role of foreign ideas and individuals" (p.273).

This patriotic narrative of history finds a parallel in the story of Zhao Ziyang. Throughout the 1980s, he was one of the most important and instrumental reformers in the People's Republic of China, yet his role in most accounts of China's modern history is minimal at best, if not completely omitted. As Gewirtz explains, this is far from incidental given Ziyang's purge from the party after the Tiananmen Square massacre, where he was seen as supportive of the student demonstrators. By the time he passed away in 2005, he had spent around 15 years under house arrest.

As to why these stories are seldom mentioned in the West, one reason "may be that they call into question the received assumptions about how Western countries influence the developing world - and, indeed, how economic development occurs. Instead of an inevitable teleology toward Western-defined "development", these stories show the negotiated acceptance of market ideas and global norms - by Chinese leaders, on Chinese terms." (p.274). China's case shows that the developing world can deal with the West on equal terms, and not simply as a student or subservient junior partner (one recalls General Douglas MacArthur's assertion, after overseeing the American occupation of Japan, that the Japanese were "like a boy of twelve as compared with [the Anglo-Saxon] development of forty-five years").

Overall, Unlikely Partners is an engaging read, and the lessons are important, shining light on how China and the West alike could view their history. As Gewirtz concludes, "the spirit of cooperation and partnership is a part of China's shared history with the rest of the world, certainly on matters like the development of its economic system but also on challenges on many other fronts, and we should hope that our experts and leaders take up the challenges with that spirit in mind" (p.276).