Chapter 62 Lecture 10: Planned Economy: A Great Experiment From Self-Conceit to Self-Destruction

The communists never had experience in managing large and medium-sized cities before they took power across the country.What's surprising, however, is that they hit it off in their first major test.It's like a young athlete participating in the Olympics for the first time broke the world record in the preliminary round. Excessive luck often brings some far-reaching problems. In May 1949, the People's Liberation Army occupied Shanghai, the largest industrial and commercial city.At that time, Shanghai was the eye of the national inflation storm, and Jiang Jingguo's "fighting the tiger" was not far away. There were more than 2,000 companies in the city and more than 300,000 people were engaged in speculation.At that time, many people at home and abroad believed that the Communist Party was first-class in fighting wars, and that its governance of the economy was probably not top-notch.Rong Yiren once recalled that he thought at that time that "the Communist Party scored 100 points in military affairs, 80 points in politics, and zero points in economy." This battle mainly revolves around the following three parties——

First, capital market regulation. On June 10, the PLA seized the largest stock exchange in the Far East, the Shanghai Securities Building at No. 422 Hankou Road, detained 234 people on the spot, and transferred them to the People's Court for trial.Subsequently, all stock exchanges in the city were closed down, non-governmental financial activities were completely banned, and the "capital market" withdrew from the economic stage.For Shanghai, it means that the function of the Asian financial center is removed, and Hong Kong takes its place.In the following half a century, it became a pure light industry and commercial center. It was 41 years later that the stock exchange returned to Shanghai Bund.

Second, the control of means of production.The Shanghai area was the manufacturing and trading base of the country’s two major livelihood industries at the time—textile and food. Chen Yun collectively referred to gauze, flour, and coal as “two whites and one black” and believed that they were the “bull nose” of soaring prices.He recruited a large amount of gauze and flour from all over the country, and after several rounds of "eating in" and selling, he defeated all the private speculators. At that time, speculators in Shanghai often went bankrupt and jumped off buildings, and the soaring prices gradually stabilized.

Third, the distribution channel control.With Shanghai as the center, Chen Yun started to establish three national trading companies: one is a national textile company, which is responsible for the supply and sales of textile raw materials and finished products; The third is to reorganize the North China Trading Corporation into 11 professional companies, and set up an import company. Each professional company will set up branch companies in small and medium-sized cities according to economic divisions and traffic arteries, and uniformly allocate funds and cadres.In rural areas, supply and marketing cooperatives were established to unify the distribution of materials.Every important field of commodity circulation is monopolized by the state, private enterprises are not allowed to engage in the circulation industry, and violators are characterized as "speculators."

When the supply of raw materials and product sales are stuck, coupled with the complete nationalization of the capital market, the two ends are sandwiched between the two ends. Although the manufacturing enterprises in the middle are still private in nature, they can no longer move. The grand structure thus emerges from the embryo.Chen Yun believes that the control of circulation, including commodity circulation and financial circulation, "is a means to gradually eliminate anarchy, and through this method, they are clamped into socialism." While suppressing and controlling domestic private capital, Chen Yun also creatively drove out all foreign-funded companies.After the founding of the People's Republic of China, foreign-funded enterprises in China became "unadaptable" to the new economic system. Chen Yun's method was to increase the tax rate on land use and force foreign-funded companies to leave one by one.Gu Zhun, who was then director of the Shanghai Finance and Taxation Bureau, described: "After Shanghai took over in 1949, we used the land value tax established by the Kuomintang government after 1945 to increase the tax rate and tax private land in proportion to the assessed land value. The land value tax was collected. No one can raise objections, but as a result of strict expropriation, the income from real estate on land with expensive land is not worth the land value tax payable. In just over a year, that is, from 1950 to the turn of winter and spring of 1951, many Foreign capitalists would rather use their real estate to pay back their tax arrears, and slip away quietly. We did not adopt any confiscation policy, but we eliminated the remaining economic power of imperialism in Shanghai."

Chen Yun's purge in Shanghai achieved great success, and by the turn of spring and summer in 1950, prices had basically stabilized.Mao Zedong spoke highly of the economic campaign in Shanghai, believing that its significance was "no less than that of the Huaihai Campaign."Chen Yun has since been regarded as the "master of the planned economy".Shanghai’s experience was extended to the whole country, securities trading institutions in various places were banned one after another, foreign companies were “peacefully expelled”, national cotton and grain planning and allocation conferences were held in Beijing one after another, and a unified purchase and sales policy was implemented for these two strategic materials. Major cities immediately established corresponding planning management systems.

The experiment of the Chinese communists in Shanghai is a classic in the history of world socialist economy, reflecting the strategic charm of the command-based planned economy in a specific period.If we look at the economic reforms of the past dynasties, we can see the obvious traces of "leveling" and "equal loss" in the reforms of Emperor Wu of the Han Dynasty.