Mao Zedong’s “Political Economy”: An Anatomy of His “Economics of Contradiction”

Abstract

It is often said that, in stark contrast to Deng Xiaoping, Mao Zedong lacked an understanding of economics, especially since Mao’s Great Leap Forward policy was such a massive failure, plunging the Chinese economy into a catastrophic crisis. While he had an economic goal of high growth centered on heavy industrialization, he disliked material incentives, demanded self-reliance, and even brought class struggle into the economy, which prevented him from achieving his goals. This chapter summarizes the characteristics of Mao’s “political economy,” while contrasting it with Deng Xiaoping’s “economics.” Finally, I will evaluate Mao’s political economics from my perspective.

The Great Leap Forward (GLF) policy of 1958, discussed in the previous two chapters, had catastrophic and disastrous consequences, making us wonder what kind of “economics” Mao Zedong had in mind when he proposed and promoted this policy, and whether he understood economics in the first place. Especially since the Chinese economy achieved spectacularly high growth under Mao’s successor, Deng Xiaoping, the catchphrase “Mao’s failure, Deng’s success” may well ring true from an economic perspective.

Mao Zedong, the revolutionary and politician, is generally viewed as an “anti-economic” figure who had no economic background or awareness of economic concepts, and was skilled at wreaking economic havoc, as evidenced by the GLF movement and the Cultural Revolution (CR). He could be characterized as a “destroyer,” rather than a constructor or creator, since in the Mao era, China did not achieve the impressive economic successes seen during the Deng era on an international scale, and people endured a prolonged period of difficult living conditions. It seems, then, that his era and policies left few economic achievements, but rather saddled China with an enormous negative legacy. Although different economists define economics differently, if we define economics as “the science of studying human behavior with respect to scarce economic resources and objectives that have other uses” (Lionel Robbins), then it is safe to say that there was no “economics” in Mao’s thought and policies, since he was totally indifferent to the scarcity of resources. When we search his writings and speeches, we find that the terms “efficiency” and “productivity,” which are related to the scarcity of resources, hardly appear. As I discussed in Chap. 5, his slogan for the GLF policy was to “achieve greater, faster, better and more economical results” (duo, kuai, hao, sheng), with his emphasis always being on “greater and faster” (duo, kuai). Nevertheless, since his “economics” was strongly influenced by politics, it may be said that Mao Zedong had his own style of “political economy.”

Let me begin by dissecting Mao’s “political economics” as it were, and then compare it with Deng Xiaoping’s “economics”. After that, I will evaluate Mao’s political economy in my own way.¹

1 Characteristics of Mao’s Political Economics

To learn more about Mao’s political economics, it is convenient to read a booklet titled Reading Notes on the Soviet Union’s Textbook of Political Economy (hereinafter referred to as the “Notes”). These Notes are compiled from a record of discussions Mao Zedong had with his reading group, which included Chen Boda, Hu Sheng, Tian Jiaying² and others who were Mao’s entourage between December 1959 and February 1960. They read together and discussed the third edition of Textbook of Political Economy (Socialist Part) edited in the Soviet Union (Zhang 2018, p. 153), therefore the Notes can be said to be a joint product of this reading group, but basically this booklet clearly reflects Mao’s political and economic thought, and can generally be regarded as his own work.

The “reading group” was held at a time when the great famine was spreading across the country due to the failure of the GLF policy, and it is thought that Mao and his colleagues started reading the Soviet Union’s Textbook of Political Economy with the aim of reviewing their own economic policies. Certainly, it cannot be denied that the reading notes were a byproduct of the ideological conflict between China and the Soviet Union, which was growing increasingly fractious at the time. At any rate, the notebook is replete with Mao’s “economic philosophy,” and while it seems to me that he should have explored the causes of the failure of his economic policies, the Notes do not address this point squarely, which is unsatisfactory from my point of view. However, it is easy to understand from the Notes how such an economic philosophy and policy style would eventually lead to an unviable economy. At the same time, his socialist economic thought in the Notes expresses part of his theory of continuous revolution and his ideal image of socialism, which later became prominent during the CR period, so in that sense the Notes are very meaningful. Hereafter, I will examine Mao Zedong’s political and economic thought, referring mainly to these Notes, supplemented with some other references.

First and foremost, what is striking when reading the Notes is that Mao Zedong describes his experiences during the previous revolutionary struggle as if it were beautiful memory. For example:

“When we were in the base areas, we implemented a payment-in-kind system; people were healthy and did not fight over treatment. After Liberation, when we implemented the wage system and appraised workers grades, we encountered many problems …. Until the early days of Liberation, we lived almost egalitarian lives …. we worked hard, fought bravely, and relied not at all on material incentives but on the encouragement of the revolutionary spirit. In the late Second Civil War, we were defeated despite the victories before and after that, but this was due not to the presence or absence of material incentives, but to whether the political and military lines were correct. This historical experience is of great significance for solving the problem of our socialist construction.” (Notes, pp. 82–83)

Mao Zedong once said:

“Some say [that] egalitarianism produces idlers. In the past twenty-two years, how many idlers have been produced [referring to the period of revolutionary struggle and Civil War]? I haven’t seen many idlers. Only grade-ism³ produces idlers.” [Remarks made at the enlarged Conference of the Central Political Bureau on August 30, 1958] (MacFarquhar et al. 1989, p. 436)

From the above quotations, we can see that Mao Zedong essentially abhorred material incentives and the wage system, while he highly valued moral incentives and rationing in kind. This may be because from his point of view “equality” (egalitarianism) was one of the noblest principles of socialist society, even of human society as a whole, and was the ideal of Marx and other “utopian socialists.” Or perhaps it was because his socialist economic thought was rooted in and influenced by Kang Youwei’s concept of “Great Harmony” (datong). However, just as the masses and leaders are not equal, the equality he refers to is equality in terms of distribution, not equality in terms of rights and duties, and much less equality of power, which is the hallmark of modern democracy. The latter could not be part of his ideology for he would never allow his own privileges to be touched. To put it simply, the cadres and the masses should be equal, except himself. He even said:

“A division commander in Yunnan went down to be an [ordinary] soldier in a company for a month. I think many ‘commanders’—army commanders, division commanders, and so on—all ought to serve as soldiers for at least month [a year]…. Civilian cadres should participate in manual labor for at least one month a year …. Learn agriculture one year and industry another. Learning them, in turn, one is bound to master these two skills.” (Ibid., p. 438).

That is to say, from Mao’s point of view, the commander and the soldier should be basically equal in terms of treatment, despite the differences in their duties—completely equal in that they wear the same clothes, eat the same food, have ascetic relations between the sexes, and lead a simple life. Here we can see him pursuing the fantasy of Marx and other classical socialists who idealized the abolition of the division of labor. However, a soldier is subject to his commander, and the two cannot be equal in terms of rights and duties. Moreover, Mao and the commander are in an absolute hierarchical relationship. The commander can be removed if he makes a mistake, but no one can oppose Mao. After he succeeded in the Chinese Revolution, Mao had luxurious villas all over the country, enjoyed sumptuous meals and, as Mao’s private doctor Li Zhisui revealed frankly, he did not find anything unnatural about enjoying sexual pleasure almost every night with the female staff serving him (Li 1994). Perhaps he was unknowingly immersed in feudal thinking or, more precisely, enjoyed the authority and consciousness of an emperor, even though he strongly criticized it. His view of socialism and Marxism seems to have been influenced by an “emperor consciousness.”

At any rate, the “successful experience” he had was in a limited area and situation during the liberation struggle and cannot be directly applied to the post-Revolution period, which differed in time and situation, as well as in scope and scale. This should have been obvious given his favored “dialectical” point of view, but he did not seem to apply this viewpoint here. The past was directly connected to the present for him, so that he simply and firmly believed that measures that had worked in the past would basically work in the present. These simple ideas and measures were applied in various situations after the founding of the country, sometimes at great cost. Land reform, agricultural collectivization, and the establishment of the People’s Communes (PC) are typical examples.⁴ This was characteristic of Mao’s philosophy of pragmatism explored in Chap. 1, but all the same, the fundamental limitation of his thought.

Let me analyze Mao’s “political economics” in more detail. For the sake of convenience, I will look at his political economy from three areas: (a) economic thought or philosophy, (b) economic institutions, and (c) macroeconomic policies. By doing this, I believe that it should be possible to grasp the overall picture and fundamental characteristics of Mao Zedong’s political economy.

• (a) Economic thought or philosophy.

There are two words that repeatedly appear in the Notes, namely, contradiction and struggle. For example, Mao Zedong stresses that:

“There would be no movement without contradictions. Society is always in motion and developing, and contradictions are still the engine of social development even in the age of socialism.” (Notes, p. 40)

Furthermore, he claims:

“Under the socialist system there is no war, but there is a struggle, a struggle of the various factions within the people.

Under the socialist system there is no such revolution where one class overthrows another, but there still exists a revolution. The transition from socialism to communism is a revolution, the transition from one stage of communism to another is also a revolution. Moreover, there are technological and cultural revolutions. Communism must necessarily go through many stages, and there can be many revolutions.” (Ibid., p. 64)

Furthermore, he says:

“Balance and imbalance are both sides of a contradiction, with imbalance being absolute and balance being relative. Otherwise, the productive forces, relations of production, and superstructure cannot develop and are solidified. Contradiction and struggle are absolute, while unity, unanimity, and solidarity are relative because they are transient. The various balances of planned work are also relative because they are temporary, transitional, and conditional, and therefore relative. It cannot be assumed that a balance is permanent rather than conditional.” (Ibid., pp. 78–79)

His “contradiction theory Contradiction theory,” discussed in Chap. 1, is thus directly incorporated into his politico-economic thought. This is a typical example of Mao Zedong’s belief that philosophy should be applied and practiced in real affairs.

However, this “economics of contradiction” sounds a little odd to me. Everything on earth is continuously moving in the final analysis; even when things appear to be at a standstill, they are “temporary” and we do not need Mao Zedong’s teaching to know this. The same is true of the economic situation: As soon as a plan is made, it diverges from reality. So, does that make planning meaningless? Is it then meaningless to make economic plans? Mao Zedong gives a somewhat positive assessment of planning, saying that “the elimination of private ownership [in socialist countries] and the ability to organize the economy in a planned manner makes it possible to consciously capture and exploit the objective laws of imbalance, creating many relative and temporary balances” (ibid., p. 78).

Thus, if imbalance is absolute, planning, which is also the art of balancing, is considered merely “temporary.” The result of this kind of thinking was that breaking plans and destroying equilibrium was inclined to be tolerated or even praised in the Chinese context at that time. As noted in Chap. 5, Mao was extremely dissatisfied with Liu Shaoqi and Zhou Enlai‘s insistence on “anti-rash-advance.” In 1956 and at the Nanning Conference in January 1958, he harshly criticized such “anti-rash-advance” views, resulting in the subsequent rash GLF policy, that is, of creating and destroying economic balances. In other words, he ordered a policy of creating contradictions and destroying equilibrium. In hindsight, if Mao had agreed with the moderate “anti-rash-advance” policies suggested by Liu Shaoqi and Zhou Enlai, the reckless GLF policies would never have been implemented, and the disastrous consequences would never have occurred. To put it bluntly, the tragedy of the Great Leap Forward was largely the result of Mao’s “economics of contradiction.”

Along with contradiction and struggle, another term that appears numerous times in the Notes is “class.” I have already discussed in Chap. 3 how Mao Zedong adopted the concept of class and class struggle, but let me look at some examples of how this term is used in the Notes.

“The transition to communism is not, of course, the overthrow of one class over another, but this does not mean that it is not a social revolution, because the substitution of one productive relation for another is a qualitative leap, a revolution.” (Ibid., p. 42)

“Even if classes disappear in socialist societies, there can be a problem of a kind of ‘vested interest group’ in the development process.” (Ibid., p. 43)⁵

“The statement [in The Soviet Union’s Textbook of Political Economy] that class struggle in China is not intense does not align with reality. The Chinese Revolution was indeed highly intense.” (Ibid., p. 44).

“The transformation of capitalist commerce and industry has been basically completed, but they [the bourgeoisie, the national capitalists] will launch a mad counterattack if given the chance. We repelled the right-wing attack in 1957, but in 1959 they attacked again through representatives within the Party. Our strategy against our national capitalists is to lure them in and trap them.” (Ibid., p. 45)

In fact, during the “Anti-Rightist Struggle” that unfolded nationwide in 1957, many intellectuals, mainly from the various democratic parties, were caught in the “open plot” (yangmou) set by Mao Zedong and were subjected to severe repression (see Chap. 4). The “attack” in 1959 refers to Peng Dehuai’s opinion letter at the Lushan Conference and the “anti-right-leaning” struggle against Peng Dehuai, Zhang Wentian and others (see Chap. 6).

From Mao’s point of view, different classes can fall into the category of ‘people‘ as long as they obey the Party, or more precisely Mao Zedong himself, and contradictions and conflicts between the Party and them are resolved peacefully through criticism and self-criticism as the “internal contradictions” theory indicates. However, when a part of ‘people’ comes to sharply oppose the Party represented by Mao, this is treated as an “antagonistic contradiction.” They then cease to be the ‘people’ and are thoroughly suppressed by the Party. As we have already seen in Chap. 3, class as a political term was no longer defined in terms of the ownership of the means of production as Marx originally defined it, but in terms of the political distance from Mao Zedong, more specifically whether ‘people’ followed or opposed him.

Nevertheless, Mao admits, the ownership was the most important economic system i.e. production relations in the Marxist terminology, so that class, which is essentially determined by the ownership relations to the means of production, must be the most basic structure of society. He had a considerable obsession with public ownership. This is because, according to him, public ownership is the fundamental condition for developing productive forces. In his Notes Mao writes:

“Looking at world history, it was before the Industrial Revolution that the bourgeoisie established their own state through the bourgeois revolution. Before the Industrial Revolution, the bourgeoisie first transformed the superstructure, seized and propagated state institutions, gained power, and greatly advanced the transformation of the relations of production, and only after the relations of production had been transformed did they get back on track, paving the way for the development of productive forces …. It is a general rule to first create public opinion and seize power, then solve the problem of the ownership system, and after that greatly develop the productive forces.” (Ibid., pp. 47–48)

That is to say, the general law of historical development, in his view, is the transformation of the superstructure (seizure of power) → transformation of ownership (i.e. abolition of private ownership and establishment of public ownership) → development of the productive forces. This logic is the exact opposite of the orthodox materialist view of history as usually understood. Mao Zedong has been trying to manage the economy according to his logic alone. It seems that none of the members of the “reading group,” including Chen Boda as a Marxist theorist, ever advised him that “such logic is not purely Marxist, let alone the many intellectuals, even Marxist adherents, who had experienced the Anti-Rightist Struggle, who instead shrank from expressing their own views and were silent about such flawed logic.

• (b) Economic systems

There are at least three economic systems to which Mao Zedong strongly adhered beside the ownership: First, the incentive system. As I have already noted he was a fierce critic of material incentives and an admirer of the payment-in-kind system. The second was the People’s Commune (PC) system. He had a considerable “adherence” to this system—a major new rural organization established in 1958—often applauding it in the following way: “The People’s Commune is good!” (renmin gongshe hao!), 98% of the nation’s farmers have joined these “large scale, public organizations (yida ergong) within a month,” “organizations, unifying industry, agriculture, commerce, schools, and militia,” “administrative as well as production organizations (zhengshe heyi). Establishment of these Communes was enough to create an illusion in his mind that a shortcut to a “communist society” had been found.⁶ The Communes had mess halls, where all villagers could eat for free, and they were much praised for having realized the communist principle of “distribution according to need.” It was also widely reported that the amount of food produced had increased dramatically. As I pointed out in Chap. 5, the atmosphere of high spirits and exaggerated reports were out of control in China at that time.

The reality, however, was harsh. After the Great Leap Forward, a horrific famine occurred, and in various places, including Anhui Province, the backbone of the PC system began to waver. Not only did this lead to the cessation and abolition of mess halls and the regression of agricultural collective organizations to their previous state (before the People’s Communes), but as will be discussed in the next chapter, many villages began to regress to a de facto individual farming system. For the villagers, they had no choice but to rely on the initiative of individual farming in order to increase food production for survival.

Third, the decentralized system is one of the economic systems that Mao Zedong insisted on. As discussed in Chap. 4, in April 1956, Mao delivered a speech titled “On the Ten Major Relationships” in which he implicitly criticized the Soviet system of centralization and stressed the importance of the “dual positiveness” of the center and the localities. In fact, in 1957, some state-owned enterprises directly under the Central Government were transferred to local state management or joint management between the central and local governments, and local enterprises that had been re-centralized during the adjustment period from 1962 were to be decentralized again from 1969 to 1970. Large central state-owned enterprises such as the Daqing Oil Field and the Changchun Automobile Factory were also decentralized to the regions. As a result, there were only 500 central enterprises, 86.5% fewer than in 1965, and their industrial output value accounted for only 8% of state-owned industrial enterprises (Wu 2009, Vol. 1, p. 529). At the same time, the decentralization of the economy, which began with the contracting out of basic construction investment to the regions, undeniably contributed to the development of local industries.

This type of decentralization was in a sense a natural policy for a country with a huge population, large land area, and historical diversity like China, but it had major impacts on the Chinese economy in the years to come. One is that it created the grounds for what Tajima Toshio called “territorialism.” More specifically, each region tends to seek to maximize its own interests based on this principle, such as by giving preference to the purchase of products produced in its own region. This type of policy led to similar industrial structures for each region (in fact, against the economic principle of comparative advantage), which in turn was one of the factors that brought about competition among regions, especially in the post-Mao era, leading to the high economic growth.

• (c) Macroeconomic policies

Mao’s economic policies, discussed in the Notes and emphasized above in the “Ten Major Relationships,” are three: One involving industrial policy, one involving the savings rate, and one involving technology policy.

Mao’s “economic policy” regarding industrial policy, in a nutshell, was to strike an appropriate balance between agriculture and industry, as well as between heavy and light industry, while giving priority to heavy industry, though he criticized the Soviet Union‘s policy for giving too much priority to heavy industry, neglecting light industry and sacrificing agriculture. He stated as follows:

“The preferential development of the means of production is an economic law common to the expanded reproduction of all societies, and capitalist societies cannot expand and reproduce unless they give priority to the development of the means of production. During the Stalin era, priority was given to the development of heavy industry, and as a result, agriculture was neglected …. Only through the simultaneous and rapid development of agriculture, light industry, and heavy industry can heavy industry be developed quickly and the people’s lives moderately improved. The experiences of the Soviet Union and China prove that if agriculture and light industry are not developed, it is disadvantageous for the development of heavy industry.” (Notes, pp. 72–73)

“Although industry develops faster than agriculture … undue emphasis on industry will surely lead to problems …. We propose the simultaneous development of industry and agriculture under the principle of preferential development of heavy industry.” (Ibid., pp. 107–108)

While I do not believe that the preferential development of producer goods, or heavy industry, is an “economic law common to the expanded reproduction of all societies” we have certainly seen the phenomenon of producer goods industries growing faster than consumer goods industries even in many capitalist countries during the industrialization process. In development economics, this is called “Hoffman’s Law.”⁷ The priority given to the development of heavy industry in the Soviet Union was partly an outcome of the socialist industrialization debate of the 1920s, but a result of this policy was to encourage the development of defence industries and this created the material basis for the Soviet Union to repel the invasion of Nazi Germany. It thus became propagated as an “economic law” in the socialist countries along with Stalin’s prestige. Mao Zedong was presumably unaware of this historical background, much less Fel’dman’s theory⁸ in the socialist industrialization debate, but assuming that the economy is virtually closed (indeed, the Soviet Union and China were both economically blockaded by the West) and that the efficiency of capital would remain the same, then, investing more in the producer goods (heavy industry) sector is known to increase the higher rate of economic growth in the long run.⁹ Although Lin Yifu and others criticize this policy for being irrational and ignoring the principle of comparative advantage (Lin et al. 1997), this theory of heavy industry-first development is rational in the sense that it guarantees higher growth in the long run from an economics perspective, assuming that certain conditions are satisfied and as long as the state can keep people’s consumption down to a low level at the initial stage of economic development.

I feel that such theoretical rationality was not important to Mao Zedong. His primary concern was to protect the newborn nation as well as his power. To protect the nation, the country had to strengthen its military power and increase its national defence capability. It would need bullets, artillery, tanks, warships, and airplanes for the sake of increasing defense capability, and to do so, he believed naturally that the country would first and foremost need iron. Such was the simple logic of his political economy. Agriculture and light industry are necessary because national defence would be impossible without providing people with the minimum necessities of food, clothing, and shelter. Strengthening the nation, needless to say, would serve to stabilize his own political power.

To finance this type of heavy industrialization, cheap food as well as cheap labor had to be available. There was some argument about who could provide sufficient accumulation funds for industrialization. Mao Zedong explained it in the following way:

“Developing agriculture and light industry and accumulating for heavy industry will be beneficial to the people in the long run …. Lenin and Stalin once said, ‘During the period of socialist construction, peasants need to contribute to the state.’ The majority of our country’s peasants are actively ‘paying tribute,’ and only 15% of the wealthy middle peasants are not happy and oppose the Great Leap Forward and the People’s Commune.” (Notes, pp. 87–88)

“The proportion of our accumulation to national income was 27% in 1957, 36% in 1958, and 42% in 1959, and we can continue to accumulate more than 30% or even more in the future. The main problem is the great development of production, and as long as production increases, the specific weight of accumulation can be increased or the people’s lives can be improved.” (Ibid., p. 110)¹⁰

As can be seen from the above quote, accumulation was more important for Mao Zedong than “people’s consumption” or people’s livelihood. For this purpose, ‘tribute’ from the peasants was necessary, as well as state control of all production, sales, and prices of foodgrain. Accordingly, China expelled all private merchants from rural areas in 1953, initiated a system of state control and procurement of food, and embarked on agricultural collectivization. The state procured foodgrains from the individual farmers at low prices determined by the state, simultaneously taking away farmers’ right to sell grains to the state and transferring it to the cooperatives or collectives they belong to, which in turn would supply the food cheaply to the cities. Thus, urban workers, mainly in state-owned enterprises, could live on low wages, which would ensure and increase the profits of state-owned enterprises and so increase fiscal revenues for investment funds. In this way, the mechanism of interconnection for economic development between foodgrains, wages, profits, fiscal revenues, and investment funds would be completed. The cyclical mechanism of the Chinese economy during the Mao era can be simplified as such. Mao’s repeated insistence on “agriculture as the foundation (yi nongye wei jichu), take grain as the key link (yiliang weigang)” was based on this developmental mechanism, along with his doctrine of self-reliance discussed below. In short, it was not based on a desire to put the interests of the peasants first.

Finally, regarding technology policy, Mao Zedong in his Notes calls for a parallel between indigenous and modern methods, and between large-sized and small-sized plants. In other words, he argues that instead of seeking only modern technology (yangfa) and large-scale plants, as in the Soviet Union, emphasis should also be placed on indigenous technology (tufa) and the development of small and medium-sized plants, in line with the Chinese reality. He insists:

“In 1959, half of the annual pig iron production of 20 million tons or so was produced by small and medium-sized plants. In the future, small and medium types of plants will continue to play a major role in the development of steel production, with many of the small types turning into medium types, many of the medium types turning into large types, the backward types turning into advanced types, and the indigenous methods turning into modern methods. This is the objective law of development.” (Ibid., p. 99)

This kind of technological choice theory in the development process reminds us of the “intermediate technology” or “appropriate technology” theories that attracted worldwide attention in the 1970s. Developing countries are inclined to import advanced and often large-scale technologies from developed countries in order to catch up with them as quickly as possible. However, even if capital-intensive, very advanced, and large-scale technologies are introduced to developing countries with large populations and excessive labor forces, they often tend to be either unusable or wasteful investments. Still, relying solely on traditional technologies cannot be technologically progressive. Therefore, technologies are required to meet the factor endowment of developing countries, i.e., the conditions of existing production factors. To be more specific, developing countries generally have a large labor force but lack capital and technology, so that, according to the intermediate or appropriate technology theory, they should introduce technologies that are relatively more advanced than before but still utilize labor. “Appropriate technology” refers to one that is appropriate in terms of the factor endowment of such developing countries, usually technology that has been relatively generalized or has become already outdated in developed countries, with preference for small and medium-sized machines and equipment rather than large-sized ones. Such technologies are easy to learn and to handle, and the inclusion of such technologies may also contribute to solving their employment problem Furthermore, as Mao Zedong also said, it is expected to be easier to introduce and learn more advanced and larger-sized technologies in the future through the acquisition of those appropriate technologies. The “indigenous blast furnaces” that were deployed throughout the country during the GLF period could be regarded as such technologies, at least theoretically.

Indeed, it is undeniable that such technology makes sense from a developmental perspective. For example, under certain conditions, it may be less expensive and more effective to build 100 smaller dams or reservoirs made of earth and stones than to build one big concrete dam. However, not all technologies function on a continuum from small to large, from backward to advanced. Iron is one example, and as pointed out in Chap. 5, pig iron made by indigenous blast furnaces actually turned out to be mere scrap iron.

2 Mao’s Economic Goals

The above provides a summary and brief commentary on features of Mao’s “political economics” and the economy of his era, in particular the three aspects of thought and philosophy, institutions, and policies, but in general Mao was interested in the economy in a broad sense with the following four focal points:

One is high-speed economic development, that is the Great Leap Forward. He was furious when Liu Shaoqi, Zhou Enlai, and others criticized “anti-rash-advance” two years before the start of the GLF policy, and he resolutely promoted the rash advance policy because he firmly believed that China had become socialist and should be able to achieve a higher rate of growth than capitalism (see Chap. 5). This was because, according to the naive Marxism and historical materialism he believed in, socialism would promote development more successfully than capitalism, that is, if private economy is abolished and large-scale public ownership is implemented, productivity should soar. Then, he imagined, China would get closer to the “communist” society that Marx had envisaged. Mao must have been euphoric when the previously mentioned exaggerated reports circulated throughout China during the GLF period. Beyond this dream, Mao had great ambitions and grand ideas of catching up with and overtaking not only the United Kingdom, but also the United States and the Soviet Union (as discussed in Chap. 5).

The second focus is self-reliance. This idea had already existed during the revolutionary struggle period. When surrounded and often pursued by Kuomintang forces, and lacking adequate supplies of necessary materials from outside, Mao Zedong and his followers had no choice but to overcome their difficulties with the spirit and policies of self-reliance. In a speech titled “We Must Learn to Do Economic Work” (January 1945), Mao Zedong said as follows:

“We cannot imitate the Kuomintang, which does not lift a finger itself but depends entirely on foreigners even for such daily necessities as cotton cloth. We stand for self-reliance …. We depend on our own efforts, on the creative power of the whole army and the entire people.” (Mao Selected Works Vol. 3, p. 241)

Certainly, this policy was particularly emphasized during the Sino-Soviet confrontation that developed from 1960. Khrushchev refused to provide China with atomic bomb technology, so Mao proceeded to have China develop the bomb on its own. This policy was also applied to each region, requiring them to create food self-sufficiency as well as a comprehensive industrial system.

The third focus was on moral incentives or subjective initiative. This corresponds to the theory of voluntarism in philosophy. Ding Shu says that one of the characteristics of “Mao’s thought” was a blind belief in the “transformation of spirit into matter” (Ding 1991, p. 12). Mao certainly believed that if only the thought could be changed, human beings would have unlimited power. He believed that if the masses awakened and rose up, they could perform any miracle. In fact, he was convinced that the reason why the revolutionary struggle managed to maintain and develop the poor bases, and the reason why the Communist Party, which was inferior in military strength at the start of the Civil War, was eventually able to defeat the Kuomintang, was that it motivated the masses to convert their spiritual energy into material power. After the founding of the country, the promotion of large-scale construction by mobilizing a massive labor force instead of machines exemplified Robert Guillain’s vision of “600 million ants” working in unison (Guillain 1967). In Mao’s eyes, this was the fruit of the labor power of spiritually motivated masses.

And finally, socialization. The intense hostility he harbored toward those considered class enemies, his promotion of the class struggle, his abhorrence of private management by farmers, his contemplation of the eventual transition of the People’s Communes to “ownership by the whole people” or nationalization, his insistence on egalitarianism and the abolition of the market—were all part of his attempt to pursue the classical socialist vision. In addition to the above-mentioned assumption that socialism = public ownership = expansion of scale = development of productive forces. Correspondingly, there was also a political formula at work: Privatization = capitalist forces = counterrevolution.

So, what was lacking in Mao’s political economy was a realistic and “purely economic” perspective on the interrelationships among the various institutions and elements that made up the entire economic system and mechanism. For example, it is impossible to motivate many people over a long period of time through moral incentives alone and, without such a motivation engine, economic development cannot be maintained at a high rate of speed. High growth cannot be achieved by self-reliance alone because it does not allow for the efficient allocation of resources, and because the introduction and diffusion of new technologies are difficult. While advocating the priority of heavy industry, he also called for a balance between agriculture, light industry, and heavy industry. This was an industrial policy necessary to guarantee a sustainable high rate of growth. However, the emphasis on accumulation neglected consumption, especially that of the peasantry, leading them into a poverty trap. If the three aspects mentioned above, i.e., economic ideology, economic system, and economic policy, had been balanced and interrelated, reckless and wasteful policies such as the Great Leap Forward and such institutions that ignored humanity like the People’s Communes would not have appeared. In my view, Mao’s economic thought, especially his economics of contradiction, broke the rational linkage between such institutions and policies.

Zhang Wenkui’s interpretation is that the biggest problems faced by “Mao’s economics” and his economic policies were problems of information distortion and incentive incompatibility (Zhang 2018). These two are in fact closely related, and it can be said that the former problem arises because of the latter. This has been an extremely important theme in theories of economic systems, even in the socialist planned economies represented by the former Soviet Union.

The information distortion problem means that correct information about reality does not reach the top decision-makers so that they subsequently make wrong judgments. There are three different types of problems involved in this process. First, those at the lower levels are familiar with the personalities and preferences of the leaders at the top, so they tend to distort reality to provide leaders with the most attractive information (models) in order to please them. Second, leaders also tend to confuse the ideal with the reality and do not want to see the ugly reality (the muddle). Mao Zedong had a famous epigram: “No investigation, no right to speak,” yet he often turned his eyes away from the real information coming from below, especially after the GLF movement in 1958. Third, local leaders were highly competitive and tended to exaggerate their reports to the top leaders. The nationwide competitiveness discussed in Chap. 5 which led to exaggerated reports of foodgrain production, right from the central leaders at the top to the village cadres at the bottom, was generated by this mechanism.

This is by no means a Chinese or Maoist problem alone. Similar tragic situations are said to have existed in former socialist countries with same political systems. Michael Ellman points out:

“Once accurate information has been screened out, and its sources suppressed, an entirely fanciful picture of reality emerges in Stalin’s perception of the agricultural situation, one largely derived from films which portrayed an idyllic picture of rural prosperity.” (Ellman 1979, p. 70)

Further, the problem of incentive incompatibility represents a situation in which the stimuli of the higher-ups (planning authorities, leaders, cadres, etc.) do not match those of the lower ones (factories, the general public, workers, etc.). The more the higher-ranking people preach idealism, the more the lower-ranking ones show false obedience. This is because the motives of the former and the real motives of the latter do not match well or are incompatible. Zhang Wenkui points outt:

“What [Mao Zedong] could never have contemplated or accepted was probably the following: After the establishment of the people’s government and the implementation of the public ownership system, why would the working masses be less active in collective labor than they were in their own private plots, notwithstanding that the working masses were no longer exploited and oppressed? Why was their positivity for collective labor not comparable to the positivity when they worked for themselves, why was the quality of the labor they performed for everyone not comparable to the quality of the labor they performed for themselves?” (Zhang 2018, p. 173)

Once the entire economy had been socialized by the Communist regime, it was thought there would no longer be any exploitation by capitalists or oppression by landlords. The “liberated” workers and peasant masses would be happy to work for the collective and for the state. This was Mao Zedong’s naive, or rather, innocent assumption, a reflection not only of Mao’s personality, but also based on the historical success story of the Yan’an period and the liberation struggle period.

Zhang Wenkui, quoting Mao’s remarks at the Central Work Conference in December 1960, speculates as follows:

“[After the Lushan Conference] Mao Zedong said, ‘I had no idea that the communist wind would blow. There were several major projects (daban). We did a lot of water conservancy, we did a lot of pig raising, and we built a lot of commodity production bases. All of this was proposed by the Central Government, and no one thought that it would lead to extreme egalitarianism (pingjun zhuyi) and unpaid-for appropriation of peasants’ resources. If we had thought about it, we would not have done such things.’ Unfortunately, Mao’s assessment did not extend to the institutional mechanism. He probably just felt that the only problem was the poor work method and insufficient work experience, and perhaps thought that this problem would not occur if the PC or the GLF policies were tried again.” (Zhang 2018, p. 177)

However, the problem was not only the institutional mechanism as Zhang suggests. In my view, if we look at the problem from an economic policymaker’s perspective, it was Mao’s ideology that was fundamentally flawed or, in his words, “contradictory.”

Zhang Wenkui insists that Mao’s persistent pursuit of a cooperative, sharing, equal, and mutually supportive society and a flexible operation of the organizational method of mass mobilization would continue to generate enormous attractiveness in the future (Ibid., p. 178). However, how “enormously attractive” can Mao’s method of organization be when it treats the masses as a means of mobilization and sees them only as tools for realizing his ideals as well as maintaining his power? In fact, the more China advanced Mao’s political economy, the worse the problem of “incentive incompatibility” became.

Besides in times of war or extreme poverty, or in a society that mobilizes the masses, or has achieved a certain degree of affluence, is it really possible to realize a cooperative, sharing, equal, and mutually supportive society in the true sense of the word? What does it mean for individuals who are not really independent to “cooperate and share” with each other? In a society where there is only a relationship of domination and submission between the leaders and the masses, how can “equal and mutual support” be realized in the first place? Mao’s political economics do not deliver adequate answers to these questions.

Li Rui, who was once Mao’s secretary, reflects on the GLF policy, in which he was also involved, and says as follows:

“The Great Leap Forward and the People’s Commune movements put into practice Mao’s ideas of socialist construction which took on a strong utopian color in his later years. During the (GLF) movement, Mao repeatedly spoke of his social ideals. In general, he thought that the utopian dreams of his predecessors would be realized more and more closely. In addition, in order to actualize his beautiful vision, he proposed theoretical perspectives such as overthrowing bourgeois rights, doing away with commodity-money relations, and abolishing the eighth-grade wage system as well as the private family economy.” (Li 1999a, p. 397)

If his fantasy had remained just that, the tragedy would not have happened. But he recklessly tried to make it a reality; moreover, no one could stop him because he was the only one who could decide what was true and correct.

3 Deng Xiaoping’s Economics

Zhang Wenkui describes Deng Xiaoping’s character and behavior as “no big truths or slogans, no poetic words, no flowery theories” (Zhang 2018, p. 205), aptly expressing the philosophy of Deng, a realist who was committed to “adjusting to reality.” Mao, on the other hand, was a man of “big truths, many slogans, words like poetry, and flowery theories.” There was indeed a significant gap between the thoughts of these two men: Mao Zedong tried to change human thought and spirit, or the superstructure, while Deng Xiaoping emphasized productive forces, the infrastructure and results, rather than thoughts and ideals.

The famous saying, “Whether it’s a black cat or a white cat, it’s a good cat that catches mice,”¹¹ is synonymous with Deng Xiaoping’s approach. Translated into political economy terms, it means “whether it is capitalism or socialism, it is a good system when production and income rise.” When the GLF and PC movements promoted by Mao Zedong failed and, in the midst of the Great Famine and Hunger of 1959–61, collective farming was dismantled and individual farming was revived in some rural areas and achieved good results, Deng condoned this trend, or rather supported it by bringing up the “white cat, black cat” notion (see Chap. 8). It goes without saying that Deng Xiaoping’s pragmatism was by no means unlimited but kept within the bounds of his conception of socialism and the Communist Party system, yet this utilitarian approach may have offended Mao’s idealistic vision of socialism, especially the PC system, thus resulting in one of the reasons for Deng’s downfall during the CR period.

The logic used by Deng Xiaoping to attack Hua Guofeng, who became Chairman of the Party after the “Gang of Four” incident in 1976, was “practice is the only criterion for verifying truth.” This was the criterion used to bring down Hua, who was one of the “whatevers” (fanshipai), that is, a person who believes “everything Mao Zedong said was right,” using Mao’s very words (see Chap. 1). In order to put an end to Mao’s insistence on the theory of continuous revolution and class struggle and to concentrate on the economy rather than politics, the two most effective systems of capitalism for economic development—private ownership and the market mechanism—were introduced on a large scale during the Deng era. At the same time, the policy of allowing the widening of disparities, or a doctrine called “theory of getting rich first” (xianfulun), which was completely opposite to the ideal of socialism, was introduced into the Chinese economy (see Chap. 2). From Deng’s point of view, what Mao was doing seemed to him to be “poor socialism,” that is, the construction of an equal but poor society.

He rejected the main tenets of Mao’s political economy, arguing that “this is not real socialism; real socialism should be a system in which the productive forces are more developed than capitalism, as Marx and others had supposed,” a return, so to speak, to a naive Marxist understanding of historical materialism. Deng states the following:

“The tasks of socialism are very many, but its fundamental task is to develop the productive forces. On the basis of developing the productive forces, its superiority over capitalism is manifested and the material basis for the realization of communism is realized.” (Deng 1993, p. 137)

In the early years of reform and opening-up, Deng Xiaoping did not necessarily accept that the market was an effective alternative to planning as a resource allocation mechanism, and Chinese economists in the 1980s were engrossed in a somewhat off-target debate regarding whether planning or market was more important in a socialist economy and, if both are necessary, how to combine them and in what proportion. For a conservative economic theorist like Chen Yun, socialism is a planned economy based on public ownership, so while the market can be used as a complementary tool, the leading role must always be planning. Chen put forward the “birdcage theory,” arguing:

“Birds [referring to the economy] will die if they are tied tightly, but they will fly away if they are left completely free. Therefore, if we keep them in a birdcage [meaning planning], we can control them and help them grow.”

However, Deng Xiaoping, a realist as well as pragmatist, realized that the bird could not fly freely in such a birdcage. Therefore, he allowed the creation of a market-based mechanism. He points out that:

“The difference between capitalism and socialism does not lie in the matter of planning versus markets. Socialism has markets, and capitalism has planning and control. …. We need both planning and markets. If you don’t do the market, you won’t understand the information in the world, and you will be content with being backward.” (Deng 1993, p. 364)

That is to say, Deng Xiaoping was not afraid to take risks, and he urged the cadres to adopt a market system. He then launched a new policy, the “socialist market economy,” which was the springboard for China’s economy to shake off the stagnation that had prevailed before and after the Tiananmen Square incident (June 4, 1989) and enter a prolonged period of high growth that drew worldwide attention. To put it bluntly, it was marketization and, in effect if not in name, capitalism, that saved the Chinese economy and propelled it forward. The stock market system, which had been avoided as capitalistic until then, was introduced extensively, after which people became fanatically obsessed with tracking the fluctuations of the stock market. The popular phrase at that time was “money first” (xiangqiankan), as people started to seek economic benefits above all else.¹²

When contrasted with such four institutions and policies that form the backbone of Mao’s political economy as discussed above, Deng Xiaoping’s economics has the following characteristics.

First, his emphasis on stability makes Mao’s theory of contradictory dynamics seem not only irrelevant but also harmful. Yet, he was not an equilibrist like the classical theorists of planning, but rather a supporter of institutions and policies that greatly endorsed imbalances, such as the market and the “theory of getting rich first‘. A phrase that well represents the economic policy of his era is “crossing the river by groping for stones (mozhe shitou guohe),” which refers to an experimental, gradualist approach of first experimenting with a policy in certain regions or organizations, and if successful, trying to spread it to other regions or organizations. After the reform and opening-up, new policies were adopted in turn in this way and spread throughout the country.

Second, Deng Xiaoping totally ignored or rejected Mao’s subjective activity theory. To begin with, his economics contained almost no ideological or spiritual elements. He was literally a “materialist” thinker, and so believed that “development is the first priority (yingdaoli)” and prioritized material growth and affluence above all. According to Zhang Wenkui,

“In the case of Mao Zedong’s economics and economic policies, it is necessary to transform human nature. On the other hand, in the case of Deng Xiaoping’s economics and economic policies, a moderate compromise with human nature is sought. This is the primary difference between the two men’s economics and economic policies.” (Ibid., p. 178).

To be more precise, Mao Zedong fancifully believed that transforming human thought would generate unlimited power, while Deng Xiaoping was more realistic, believing that human thought could not be easily changed and that vitality could be generated by stimulating the innate desires that people possess. This is the major difference between the idealist Mao Zedong and the realist Deng Xiaoping.

Deng Xiaoping, who was well aware that human nature is dominated by material desires, understood that such a system that stimulates these desires can actually promote development. The markets and disparities mentioned above were merely tools for development for Deng, and as he himself admitted, he was not originally a scholar, did not read the classics of Marxism well, and had little interest in what Marx and Engels had said, as he had originally made his mark as an organizer and activist. Paradoxically, it was his lack of theoretical basis and shallow knowledge of Marxism that enabled China’s economy to develop at a high speed in the post-Mao era, by following the path of realism and pragmatism rather than dogmatism.

Third, Deng Xiaoping effectively rejected the theory of self-reliance. As for systemic reforms, Mao Zedong also had promoted certain reforms in his own way. For example, besides the decentralized systems referred to above, he introduced the “Party Committee-led enterprise responsibility system,” which replaced the Soviet-style “one man-management system,” i.e., the system in which the head of an enterprise assumed all authority and responsibility in management. However, during the Mao era, China basically did not adopt an “open-door” policy, or rather, avoided it. This was because China aimed for a self-sufficient economy, in terms of trade, while regarding foreign investment, it was thought that accepting foreign investment would lead to the loss of management autonomy and domination by foreign countries. However, during the Deng era, China shifted to a comprehensive and bold open policy. One aspect of this was the rapid expansion of foreign trade, and another was the active acceptance of foreign investment, as well as the establishment and expansion of special economic zones and economic development zones closely related to these two policies. In contemporary China since the death of Deng Xiaoping, openness has become synonymous with globalization, and “the outward expansion of capital” has also been actively pursued. China has now become a major capital exporter rather than an importer as before.

Deng Xiaoping‘s decision to open to the outside world was also part of his pragmatism, because he believed it would accelerate economic development. As the theory of comparative advantage in economics teaches, free trade and the international division of labor allow for more efficient allocation of resources and faster economic growth than self-sufficiency or self-reliance. Deng, who was not a theorist, intuitively grasped this logic very well, not from economics textbooks, but from the experiences of surrounding countries and regions.

In the background of his open-door policies there were also favorable changes in the international environment. During the Mao era China initially belonged to the socialist bloc with the Soviet Union as its ally, but as the Sino-Soviet conflict intensified, China had to confront the Soviet Union. Partly as a result of such military tensions, Mao Zedong chose a policy of self-reliance. However, by the time of Deng Xiaoping, the Cold War had eased and the United States and China had established diplomatic relations, so that an environment was created where China could cooperate with the international community. When the reform and opening-up era arrived, China was able to enter the global market extensively and to receive the utmost benefits of free trade. In such an era, self-reliance has become an outdated policy. No need to say, Chinese leaders do not entirely abandon the pursuit of economic and technological self-reliance, even in the face of the challenging international environment.¹³

Fourth, while emphasizing growth, Dengist China also began to pursue efficiency. In this sense, full-fledged economics in the sense of Robbins began to work for the first time in China’s economic policy. In the Deng era, especially after the transition to a market economy, a number of huge projects were launched, including the construction of the Three Gorges Dam, but the “600 million ants” type of projects that had mobilized massive labor power during the Mao era were no longer carried out. In today’s era, labor is not free as in the Mao era, and it has been found to be far more economically and technologically efficient to replace labor with machines.

In addition, the Party Committee-led enterprise management of the pre-reform era became a thing of the past, and there were calls for more efficient business management. Under Deng Xiaoping’s pragmatism, anything that was useful for business management, whether capitalistic or not, was actively incorporated. Since the early 1990s, a large number of Western business books began to appear widely on the shelves of Chinese bookstores. This can be attributed to the simultaneous emergence of numerous private entrepreneurs in the country.

Such a trend amounts to China’s revision of the definition of socialism, or giving up the realization of a complete, original socialist society. In 1987, at the Partys 13th National Congress, General Secretary Zhao Ziyang advocated the “theory of the Primary Stage of Socialism.” The essence of this theory, to simplify drastically, is “China is still very poor. Didn’t Marx say that capitalism would develop highly and transition to socialism? Then, let’s go to a socialist society in the original sense after becoming a little richer.” In principle, this theory maintains that the public ownership system, which is the basic system of socialism, is to be maintained, but the primitive socialist economy must take “supplementary lessons in capitalism,” so to speak, which it has not done enough to achieve. In a sense, this approach is tantamount to turning back the hands of the clock to the pre-1953 state of New Democracy. However, it is clear that the richer the country becomes, the more the division of labor develops, and the further away it drifts from socialism (communism) in the Marxist sense. This theory can only be defined as “Chinese socialism.” After all, the Party Center decides how to define socialism.

4 How to Evaluate Mao’s “Political Economics”

It is generally understood that it was Mao Zedong’s talk on the “Ten Major Relationships” mentioned earlier that prompted China to move away from the Soviet Union‘s economic model and to seek a Chinese-style socialist model for its own economic strategy. China, stimulated by the criticism of Stalin at the 20th Congress of the Soviet Union’s Communist Party in February 1956, was freed from the yoke of the Stalinist economic model and began to search for its own way to solve the various problems of the centralized socialist economy that China had learned from the Soviet Union. In his talk, Mao focuses on the following “relationships” directly related to economic policy: The relationships among heavy industry, agriculture, and light industry; those between coastal and inland industry; those between economic and national defense construction; those among the state, production units, and individual producers; and those between the Central Government and local governments. Mao Zedong paid particular attention to the relationship among heavy industry, agriculture, and light industry, as well as the relationship between the central and local governments.

However, it is not necessarily true that such an idea was unique to Mao Zedong. The platform proposed at the above 20th Congress of the Soviet Union’s Communist Party set forth policy objectives similar to those of the “Ten Major Relationships”: (1) to rapidly develop the production of consumer goods on the premise of prioritizing the development of heavy industry, (2) to eliminate the phenomenon of agricultural lagging and the resultant imbalance between agriculture and industry, and in addition, (3) to transfer many industrial enterprises belonging to the Central Government to the management of local institutions. These policy objectives are all exactly the same as Mao’s “Ten Major Relationships” (Shen 2008, pp. 87–88). Since this Platform had been addressed before Mao’s talk, it is natural to assume that Mao Zedong used it as inspiration for his doctrine of Ten Major Relationships.¹⁴ It goes without saying that the platform was only a goal, and whether or not it was actually realized is another matter. In fact, the Soviet centralized system basically continued after that, Khrushchev’s attempt at a large-scale food production program failed, and the agricultural problem was one of the Achilles’ heels of the Soviet economy even after the 20th Party Congress.

If there is any uniqueness in Mao’s economic policy and thought, it lies in his emphasis on moral incentives, class struggle, and the “economics of contradictions,” while he had no great interest in technology, machinery, or productivity as seen in the Platform. The theory of the Ten Major Relationships included the relationships between the Han and ethnic minorities, those between the Party and the non-Party, those between revolution and counterrevolution, and those between right and wrong, suggesting that Mao was strongly interested in the political and ideological aspects. This may be because, in my view, politics, ideology and more specifically, maintaining power, were more important than economics to Mao Zedong.

During the Mao era, the Soviet-style planned economy system created by Stalin was realized around basically maintained, although the planning mechanism was temporarily disrupted during the CR period. However, a huge and strong planning bureaucracy like that of the Soviet Union was not produced in China partly because of its short history of socialism, so that while the Soviet Union is said to have had around 2000 kinds of goods included in the planning and control items, in China there were only 40 kinds of planned items at most, of which only a dozen or so important items such as steel were properly planned. (Xue 1988). Mao Zedong himself did not like to create or be bound by strict systems, and as seen above, he emphasized contradictions and imbalances in the economy, so there was no way that a strict planning mechanism could be established in China during his era.

During the same period, alternative socialist economic systems were envisioned in Eastern European countries to replace the Stalinist-type centralized planning system. Well-known and internationally influential was the “decentralized socialist” model developed by Polish reformist economist Wlodzimierz. Brus¹⁵ (Brus 1971). In that model, enterprises were to be given autonomy in production decisions and consumer goods were to be traded on the market rather than planned.¹⁶ Mao’s idea of decentralization was not a market-based one, but only an administrative one that gave authority to localities representing the state, specifically provinces and municipalities. As a result, enterprises were not given their own decision-making power, nor was there a market, and from the perspective of enterprises that were completely transferred from the central to the local level, the Central Government’s directives were simply replaced by the directives of the local government. Moreover, such decentralization was not conceived independently by China; in fact, it had already been proposed at the 20th Congress of the Soviet Union’s Communist Party, as I mentioned above.

Another reason Mao chose administrative decentralization rather than a market-based one is that he had no faith in the market and was concerned that the market would lead to disorder and chaos. His lack of respect for the market law, i.e., the law that supply and demand are regulated by prices alone, is typified by the following observations:

“It is fine to use the law of value¹⁷ [hereafter read as the market law in our sense] as a planning tool. But we cannot use the law of value as an important basis for planning. We made the Great Leap Forward not on the basis of the demands of the law of value, but on the basis of the fundamental law of socialism, the need to expand our production. If we conclude that the GLF is not a success solely from the standpoint of the law of value, we can say that last year’s [1959] pig iron and crude steel production was wasteful, that crude steel made by the indigenous method is of poor quality, that the government’s subsidized expenditures are too high, that it has no economic effect, etc. If we look at the GLF from the standpoint of the law of value, we can say that it was a failure. In the local and short-term, pig iron and crude steel production may seem to be a loss, but in the overall and long-term perspective, it is highly significant. …. Depression does not occur in socialist societies primarily not because of the grip of the law of value, but because of socialist ownership, the basic economic laws of socialism, planned production and distribution throughout the country, no free competition and no anarchy ….” (Notes, pp. 86–89)

We find the classical Marxist view of economics in Mao’s argument here: That is, socialism is a planned system without anarchy, while capitalism is anarchic because it is a market economy. Thus, Mao emphasizes that in the long run they need a holistic and planned perspective that is not bound by the market law. Ironically, however, Mao was compiling these Notes amid the chaos caused by the GLF disaster, and the Notes fail to admit that the policies promoted by Mao and others were exactly the ones that led to that “anarchy.”

Be that as it may, in hindsight, Mao and his colleagues were bound by a lack of basic understanding of the market system, including a failure to recognize its endogenous dynamics. Not only Mao, but also other famous reformist economists active in Eastern Europe at the time, such as W. Brus, Kornai Janos,¹⁸ and Ota Sik,¹⁹ recognized the necessity of the market and price mechanism as a function to regulate supply and demand, but failed to grasp the active and creative nature inherent in the market mechanism. They had no idea about the active and creative nature of the market or price mechanism, such as the entrepreneurial roles of Joseph Schumpeter or the animal spirit of J. M. Keynes. With the economics of contradictions theory in hand, it would seem that Mao Zedong should have discovered such an economic mechanism, but while he spoke of the “contradictions” of planning and its regime, he had no idea of the dynamism the market mechanism brings about. From his point of view, the active nature of the economy was not a product of the market, but of the innate spirit of the masses. It was Deng Xiaoping who virtually discovered the dynamic roles of the market and used them in actual policies during the post-Mao era, especially after 1992, when he formulated the so-called “theory of socialist market economy.”

According to Shen Zhihua, Mao’s dissatisfaction with the planned economy that he showed at the Party’s Eighth National Congress in September 1956 was not about the system itself, but about the “evasive balancing” approach of this system (Shen 2008, p. 347). Mao’s emphasis was on “letting the localities be proactive, breaking through the balance of planning with mass movements, making up for the lack of funds, and creating miracles and high speed,” all of which eventually led to the economy being run on administrative orders. On the other hand, Liu Shaoqi and other adherents of the planned economy did not fully understand the essence of the planning that had just been imported from the Soviet Union, nor did they recognize its substantial defects. Instead, they simply followed Mao’s lead, pursuing the virtually unplanned disastrous GLF policy.

Qian Liqun highly praised the ideas of Gu Zhun, a researcher at the Institute of Economic Research of the Chinese Academy of Sciences, who was ousted from office after being labelled a rightist in the Anti-Rightist Struggle. Qian even calls him “the only critical intellectual on Mainland China during the 1950s, 1960s, and 1970s” (Qian 2012a, Vol. 1, p. 176; Qian 2012b, Vol. 1, p. 128). In his diaries and other writings, Gu secretly laid out his vision of China’s ideal economic system. The idea was that China should recognize the commodity plus money economy, that is, the market economy, and create a democratic socialist system, or “social democracy” that combines capitalism and socialism. At first glance, it appears that he had similar ideas to those of Brus at the time, but his ideas were not theorized and systematized like the Brus model, and were only in a fragmentary conception stage. Nevertheless, he was obviously trying to find a third way of socialism, different from both the Stalinist and the Maoist model. But even if he had not been politically ousted, such an idea would never have been publicized and discussed under the Maoist regime. This is because the Anti-Rightist Struggle deprived everyone of independent thinking, and afterwards, China developed an unbalanced system and political climate in which the truth was monopolized by Mao Zedong alone.

Last but not the least, I expect that readers of this chapter will surmise that I have doubts as to whether Mao Zedong and his political economy left any discernibly positive legacies for contemporary China. However, I do not deny the fact that the Chinese economy during the Mao era did bequeath certain economic legacies for the post-Mao period, as I will stress in the last chapter. These include fundamental economic infrastructure such as transportation networks, basic industrial sectors like steel and chemical industries, essential social infrastructure such as education and healthcare, and, most importantly, a substantial pool of technical personnel. Nevertheless, it is crucial not to overlook that these accomplishments and legacies were achieved at a considerable cost, whether financial, or time, or human.