In this Hoover Institution’s analysis, the authors compared and contrasted the successful agricultural reforms in China, against failed reforms in Russia.
The report is fairly lengthy, but there are some real gems.
Here are some highlights:
1. Contrary to common perception, China did not succeed because Deng was prescient to the needs of reform and thus instituted gradualist top-down policies. And Russia did not fail because it missed the reform model and moved too quickly to maintain political cohesion.
Throughout the reform process, the Chinese Communist Party simply reacted to (and wisely did not oppose) bottom-up reform initiatives that emanated largely from the rural population. Deng Xiaoping’s famous description of Chinese reform as “fording the river by feeling for the stones” is not incorrect, but it was the Chinese people who placed the stones under his feet.
The difference was that Gorbachev imposed these changes from above, on an urban economy in which virtually all citizens worked for the state. Gorbachev’s reforms either were ignored or they were enacted with perverse consequences.
De-collectivization happened on a grassroot level in China at first, where farmers initially risked severe punishment to set up “contract responsibility system”. Even after official support from Deng, farmers were not given long-term (favourable) commitments to the land. In Russia, however, the state agriculture apparatus offered farmers long-term leases and favourable conditions to privatize land. But few took the state up on its offer.
So essentially, Gorbachev tried to expand the market through reforms but failed. Deng approved the market mechanism after it proved successful, so he could not fail.
2. There was little popular support for reforms in Russia. At the time, the Russian population seemed more or less content with the existing system. But in China, where people were still reeling from famine, political instability and economic stagnancy from the previous decade, the will to change, or in Hoover-speak, a reform constituency, was very real in China.
3. China’s first agricultural entrepreneurs hailed mostly from rural areas, and were in direct control of the farm products sold in cities. In Russia, the cooperative movement involved mostly city dwellers, and not farmers.
Early Chinese traders moved the farm goods themselves from the countryside to cities, and created several markets in the process. They sold their farm product in the cities, and on their trips back bought up goods that were only available in cities and sold them in the countries. In the process of doing so, they also skirted around state-run hotels and opened their own. And money made through trading was then invested into building houses back in the countryside. And each step of the way, they could plausibly push for more private rights.
Corruption, an unpleasant by-product of privatization, was initially used to circumvent unfavourable taxation on private enterprises, so they could operate unhampered.
At one point:
The improvement in product quality and the disappearance of long food lines convinced urban residents, as well as government leaders, of the power of grassroots entrepreneurial activities. The state could not curtail such activities without inflaming the entire populace, although it periodically tried.
4. China lucked out on FDI, courtesy of its active and moneyed Diaspora scattered close by. Those over-sea Chinese brought back not just capital, but business know-how. And their presence provided the lubricant for last three decades of international trade.
Proximity to trading ports such as Hong Kong and Macau also allowed Chinese goods access to the global markets easily and relatively cheaply.
5. On reforming state owned enterprises (SOEs), Russia collapsed under the weight of reform, where its entire citizenry worked for the state.
In China, the SOEs were just as inefficient, but the strength in the rest of its economy at least supported the SOEs until they were gradually privatized throughout the 90s.
Much of China’s success in agricultural reforms was attributed to the natural development of the rural sector without government hindrance. This almost accidental success has guided Chinese leadership over the past few decades, whether justified or not.
Russia’s preference of political leadership is also tightly connected to the failure of its badly-timed reforms. The last word?
Each country seems to have learned the wrong lesson from the other — China that political reform will destroy the Communist Party and Russia that only a strong authoritarian leader can make reform succeed. China’s ruling party continues to resist political change. Putin and Medvedev continue to strengthen authoritarian control.