Chapter 25 Section 2 Summary of Planned Economy
China's planned economy has its inevitability.New China chose the planned economic system in the 1950s to achieve modernization through accelerated industrialization.So how to move towards industrialization?China must start a business, and starting a business has systemic risks.Many developing countries adopted the "import substitution" strategy after the Second World War, but it failed.In fact, from the agricultural economy to the industrial economy, there are huge systematic entrepreneurial risks.China's choice of a planned economic system was also influenced by the international economic trends at that time.After World War II, the success of the Soviet planned economy affected the world.While the U.S. and European economies were in depression, the Soviet economy was thriving, and this was achieved under the planned economic system.The planned economic system also spread to the newly independent developing countries, including China and India. Comparing independent India in 1947 and New China in 1949, the per capita income levels are basically similar. In the early 1950s, Jawaharlal Nehru became the first prime minister of India. Following the example of the Soviet Union, he formulated several five-year plans for economic development and invested heavily in heavy industries while ignoring light industries. Since then, India’s annual growth rate has been 2 for a long time. %, dubbed "India-style growth," a phenomenon that lasted until 1991.Under such conditions, building a planned economy centered on heavy industry was a realistic choice at that time.
With the rapid recovery of the national economy, China began large-scale economic construction in 1953.However, China generally lacks experience in large-scale economic construction, has no capital, only a small amount of loans from the Soviet Union and other countries, and mostly relies on domestic savings.Li Fuchun, director of the State Planning Commission at the time, pointed out in the "Report on the First Five-Year Plan for the Development of the National Economy" made at the Second Session of the First National People's Congress in July 1955: "In five years, the whole country will The total expenditure on economic construction and cultural and educational construction is 76.64 billion yuan, which is equivalent to more than 70 million taels of gold. It is completely unimaginable in China’s past history to use such a large amount of funds for national construction.”
What is a planned economy?We need to describe it.That is, all material production and distribution are regulated by the state.The CCTV program "Road to Revival" once had a wonderful interview.At that time, the annual planning meeting was held for several months. Zhu Zhixin, who served as the director of the Economic Comprehensive Department of the State Planning Commission, recalled: "At that time, planning was like a meeting of mules and horses. It was very powerful. Take a coal mine as an example. How much coal and pit wood is needed should be reported. What about the pit wood? I will go to the forestry department to see how much wood it has, and how much it can be distributed to the coal industry after collecting it, and then go to the railway department for transportation. This is the plan. "Obviously, this is a very strict planning ecological chain, which operates in a highly centralized and fully closed system. Enterprises across the country are like workshops, the Premier of the State Council is equivalent to the factory director, and the planning committee is a dispatcher Room, plan ordering, financial appropriation, bank counting money, it seems so well organized.However, this planned economy's exclusion and disregard for efficiency is already something that does not need to be argued.Chen Qingtai, former deputy director of the State Economic and Trade Commission, once served as the director of Dongfeng Automobile Factory (Hubei Second Automobile). He said in a lecture at Tsinghua University that the boundary between an enterprise and the country is a warehouse gate.Second Automobile Group delivers the cars it produces to a national warehouse, which means that the task has been completed, and then the state plans to be responsible for the distribution of the cars.
China fully learned the Soviet model in the first five-year plan.Li Fuchun pointed out in the "Report on the First Five-Year Plan for the Development of the National Economy" made at the Second Session of the First National People's Congress in July 1955, "Industrial construction is the first five-year plan of our country. Center, and the construction of 156 industrial unit projects with the aid of the Soviet Union is the center of industrial construction". The "First Five-Year Plan" also considered the improvement of people's living standards. Li Fuchun said in the report, "The five-year plan made appropriate provisions for the improvement of people's material living standards. In five years, the number of employed people increased by about 4.2 million. The average salary of employees increased by about 33% in monetary terms.” The investment allocation in the "First Five-Year Plan" is relatively comprehensive, with industry accounting for 58.2%; rural water conservancy accounting for 7.6%; transportation, post and telecommunications accounting for 19.2%; trade, banking and material reserves accounting for 3%; culture, education, and health accounting for 7.2%; Utilities accounted for 3.7%; the remainder at 1.1%.
But there are two main problems in the first five-year plan: one is the imbalance between production and consumption.In Li Fuchun’s report, this ratio was clearly planned, “According to the provisions of the first five-year plan, in the investment in industrial capital construction, the investment in the manufacturing of means of production industries accounted for 88.8%; the investment in the manufacturing of consumer materials industries accounted for 11.2%” .In the first five-year plan of the Soviet Union, the investment in manufacturing means of production industries accounted for 85.9%, and the investment in manufacturing consumer materials industries accounted for 14.1%.This ratio has traces of directly copying the Soviet Union.The Soviet Union began to industrialize during the Tsarist Russia period, and had a considerable industrial base, and the per capita income of the Soviet Union was much higher than that of China at that time.Therefore, the proportion of the "First Five-Year Plan" was not suitable for the initialization conditions of the Chinese economy at that time.The second is that the autonomy of local investment is relatively small, and the management of enterprises is too strict.During the construction of the "First Five-Year Plan", the Soviet model gradually exposed certain problems in China, such as one-sided emphasis on the development of heavy industry and neglect of light industry, emphasis on accumulation and neglect of consumption, and too strict and rigid control of local governments and enterprises. In 1956, Mao Zedong already realized the disadvantages of the Soviet planned economy in "On the Ten Major Relationships".He pointed out, "It is particularly noteworthy that recently the Soviet Union has exposed some of their shortcomings and mistakes in the process of building socialism. Do you still want to take the detours they have taken? We have made some detours, and of course we must take precautions now.”
Here, we need to review the Soviet Union's economic development model. In 1925, the Soviet Union put forward the policy of "socialist industrialization" and advocated the priority development of heavy industry.Adopting a highly centralized planned economic system, the state manages the economy, and light industry and agriculture must meet the requirements of the development of heavy industry and provide funds for it.In terms of actual production, the instructions of the central government are also implemented throughout the entire production process. Enterprise managers are appointed by the central government, the financial budgets and annual plans of state-owned enterprises are approved by the central government, and state instructions replace market principles. Production and allocation of resources are based on government needs, such as heavy industry. priority, and the command economic plan is fully reflected in it.From its launch in 1928 to its disintegration in 1991, the Soviet Union implemented a total of 13 five-year plans.As shown in Figure 3-9, the Soviet Union experienced a brilliant period of development. It achieved relatively high growth rates from 1933 to 1938 and from 1948 to 1958, which seemed to prove the superiority of the planned economy, but after the 1960s The growth momentum of the Soviet Union began to weaken, and the growth rate fell sharply in the 1970s and stagnated in the 1980s.From 1965 to 1990, the living standard of the Soviet people never improved after reaching a certain level.There are only shelves in the store but no goods, people spend a lot of time queuing to get basic daily necessities, and there is a severe shortage of housing for residents.
Regarding the planned economy, there are two questions that are not well answered.The first is why the Soviet planned economy succeeded in the short term but failed in the long term?In the famous debate about planned economies in the 1920s, Hayek and von Mises argued that planned economies failed to begin with, failing to foresee the impressive growth performance of the Soviet planned economy system in the mid-20th century.Jeffrey Sachs and others provided a preliminary answer to this question, arguing that the division of labor evolved to a certain degree of complexity, and the planned economy could not keep up.But it is difficult to judge the dividing line of the complexity of the division of labor, so Jeffrey Sachs' statement still lacks credibility.The second question, is the planned economy without technological progress?In the planned economy system, technological progress is remarkable in the early stage.At that time, the economic circles generally believed that there was a problem with the growth mode.In the late 1960s, Soviet economists proposed to realize the transformation of economic growth from extensive growth to intensive growth.
The Soviet Union has been trying to take the road of intensification since 1971. After 20 years of hard work, the result is still unsuccessful.The Soviet Union had significant technological progress in the early days of the planned economy. Otherwise, the economic growth rate could not have been so high, but the technological progress gradually faded in the later period.According to the Marx-Kuhn economic law, the stoppage of technological progress in manufacturing is inevitable.After the technological progress of the manufacturing industry reaches a certain level, it will eventually run out and enter a stage of diminishing returns. This is not a matter of growth mode, but an inevitable law that occurs when the industrial economy develops to a mature stage.Was the "stagflation" in the United States and Western Europe in the 1970s a complete coincidence of timing?no.At that time, the technological progress of the industrial economy in the United States and Europe had been exhausted day by day, investment opportunities in the manufacturing industry were gradually disappearing, and the information industry had just been born and had not yet become a leading industry.In the case of insufficient effective supply, relying on fiscal policy to stimulate "effective demand" often lacks investment results. Instead, the liquidity brought about begins to flood, and the credibility of monetary policy's anti-inflation is still lacking, and inflation becomes difficult. control.
Looking at the stagnation that occurred in the Soviet Union after 1980 and the stagnation in Japan after 1991, they are just "fifty steps laughing at a hundred steps", and the essence is the same. After the end of the 1960s, due to the disappearance of the potential for technological progress, the huge accumulation of physical capital inevitably suffered from diminishing marginal returns, and the return on investment declined. The Soviet Union began to enter a period of economic slowdown, and the economic system became rigid.
Existing economics’ understanding of the institutional flaws of the planned economy model only stays at the first level, that is, the lack of technological progress in the industrial sector, but does not consider the other flaw, that is, the planned economy is simply unable to adapt to the productivity revolution.There is indeed a problem with the growth mode of the planned economy, but it is not the deepest problem.A deeper explanation is the inability of the Soviet Union to seize the new growth opportunities of the information technology revolution.Let's take a look at how to generate an information economy within a planned economy.With high wages in the industrial sector and no labor market, it was impossible for a computer company to find suitable employees.In the planned economic system, there is no capital market, and banks will not take the risk of technological revolution to provide loans to enterprises, and enterprises cannot find investors.
Therefore, the emerging information industry cannot be produced in the planned economic system, but can only be produced in the market economic system with adaptive efficiency.The famous American futurist Joseph Nye pointed out that the planned economic model of the Soviet Union was useful for the industrial revolution, but this planned economic system was a huge disaster for the information revolution.The planned economy is beneficial to heavy industries such as steel and electric power, but it lacks rapid response and adaptability to the new information-based economy, because the life of information products is only 1 to 2 years, but if the model of the Soviet planned economy is followed, this product may have just arrived. Plans to start production are outdated.The collapse of the planned economy in the Soviet Union just verified the point of view of this book-the problem is not only that enterprises realize technological innovation in the "Red Sea", but also that a more adaptive economic system must be formed to encourage enterprises to carry out revolutionary innovations and establish A new business model, creating a "blue ocean".
The planned economic system is inseparable from the heavy industry priority strategy.Lin Yifu, Cai Fang, and Li Zhou advocated that China should implement a comparative advantage development strategy in the early days of the founding of the People's Republic of China.In the book "China's Miracle: Development Strategy and Economic Reform", they believed that the root cause of China's slow development in the past was the implementation of a heavy industry priority development strategy that did not conform to China's comparative advantages. They believed that the heavy industry priority strategy was exogenous and determined Formation of planned economic system.In order to cooperate with the implementation of the first five-year plan that reflected the priority development strategy of heavy industry, a series of management agencies for planning and allocation of resources were established around the mid-1950s, and a highly centralized resource planning and allocation system was gradually formed. And finally produced a path dependency.
China's comparative advantage is low-cost labor. Actively developing labor-intensive industries can occupy the international market, gain economic profits, and quickly accumulate capital. The profits generated by light industries can then be further invested in capital-intensive heavy industries. In order to realize the upgrading of the industrial structure "small steps and fast running".In the second 30 years of the Republic, the experience of Zhejiang is the best example of this development strategy. Before 1978, there was almost no industry in Zhejiang. After 1978, Zhejiang started from manual light industry, gradually accumulated capital and promoted industrial upgrading. In 2008, Zhejiang has entered the advanced manufacturing stage.You may remember that Zhejiang people first started with light industries such as spiked leather shoes, plucked cotton, and clothes, and finally developed into equipment manufacturing.Zhejiang's industrial upgrading and replacement are dazzling and breathtaking.
I am not here to discuss the priority of the planned economy and the heavy industry development strategy, but there are two things that are certain.One is that the mandatory saving time is too long, which dampens the enthusiasm for labor.By lowering the prices of agricultural production factors and relatively raising the prices of industrial products, China's agricultural sector savings are transferred to the industrial sector. At the same time, low wages are implemented. State-owned enterprises have realized a large amount of industrial profits, and industrial profits have become an important part of fiscal revenue. It is planned to convert the state fiscal surplus into investment in the industrial sector.Relying on policies to lower the prices of agricultural products and wages for long-term compulsory savings is acceptable in the short term, but in the long run it will seriously dampen the enthusiasm of farmers and workers.
Therefore, the total scale of investment in fixed assets must be properly controlled to match the growth rate of living consumption, but it is not easy to judge the reasonable proportion in advance.If consumption is found to be too low, we have no choice but to suppress investment.The strategy of giving priority to heavy industry is often "haste makes waste", which is prone to serious problems such as the imbalance of investment and consumption and the separation of investment and consumption.Consumption is the ultimate goal of economic growth. Once the level of consumption is too low, it will hold back investment.Second, the ability to create employment opportunities is poor.The development of relatively labor-intensive industries can create more employment opportunities, transfer more labor from the agricultural sector, and directly reduce the pressure on employment.Regrettably, after decades of development, although the proportion of China's industrial output value has greatly increased, the proportion of agricultural labor is still very high.Except during the "Great Leap Forward" period, the labor force in the primary industry decreased, and the development of industry did not absorb a large number of rural labor force, indicating that there were serious problems in the choice of technology for industrialization, and the fruits of development were not shared with more people.
During the planned economy period, the economic trajectory fluctuated widely.Industrial growth rate and investment rate are highly positively correlated, and investment fluctuates greatly.Why is this?Because in the case of a planned economy, investment constraints come from fiscal conditions and balance of payments accounts.In terms of the financial system, before 1978, the state was the main body of savings and investment.At a time when there was little international trade, fiscal constraints prevailed.Fixed asset investment mainly comes from fiscal capital construction appropriations, and bank loans are mainly used as working capital for enterprises.The planned economy is not only a shortage economy, but also subject to financial constraints, it is a kind of "oscillating economy".On the one hand, because there is no process of "money begets money", the magical effect of capital compound interest cannot be brought into play, resulting in an ever-increasing economic scale. When capital is allocated according to a highly concentrated planning method, interest rates are artificially lowered, and State-owned enterprises have a strong investment hunger.When Chen Yun presided over the preparation of the fourth draft of the "First Five-Year Plan" in 1954, he said, "The problem now is that the fiscal revenue is getting smaller and smaller, while the investment is getting more and more. Therefore, the unit price of each project must be calculated."
The profitability of state-owned enterprises is not high, and the state's fiscal revenue cannot keep up with the expansion of the economic scale. That is to say, the horses pulling the carts are still the same.Under such financial constraints, economic development can only stop and go, resulting in ups and downs.As shown in Table 3-3, China's fiscal budget revenue and expenditure were basically balanced during the "First Five-Year Plan" period. In 1958, the first year of the Second Five-Year Plan, the "Great Leap Forward" began. Fiscal expenditures increased rapidly, investment frenzy occurred, and agriculture and light industry were further squeezed.However, fiscal revenue could not keep up with the investment demand in fiscal expenditure, resulting in huge fiscal deficits in 1959 and 1960.With insufficient debt issuance, fiscal deficits force banks to issue large amounts of money, triggering inflation.Su Xing said in "The Economic History of New China", "Many commodities are sold out in state-run stores, and the prices on the free market are several times or even ten times higher than the state-run prices."In the end, large-scale investment came to an abrupt end, and unfortunately, three years of difficult times were encountered. The "Great Leap Forward" had serious economic consequences and caused great difficulties for people's lives. In 1961, China decided to implement the eight-character policy of "adjustment, consolidation, enrichment, and improvement" for the economy, and decisively reduced the scale of investment, which eased the serious imbalance between accumulation and consumption. The period from 1963 to 1965 was a period of economic adjustment and achieved good results.
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