Chapter 1

MODELS OF RURAL INDUSTRIALIZATION

Industrial Policies 1 The new government in 1949 almost immediately launched its program of economic development, with a central economic strategy more or less based on the Soviet model. All efforts were to be directed towards a core of heavy in a limited number of sectors with savings generated largely by the remainder of the economy. Following the Soviet model, the new government chose the organizational instrument of central economic planning. The planned sector was not only granted investment preference but was actively directed by the state. The non-planned sector was sub• ject to a number of controls largely for the purpose of maximizing savings in the interest of the preferred sector. All major economic enterprises came under direct central control, by-passing local authorities. The handicraft industry was gradually transformed into . Only in 1954, however, had the organizational prerequisites for centralized planning been achieved. Even then, the entire econ• omy of the country-still backward and economically disunited• could not be integrated into a single planning system. Thus the economy was divided into a planned and a non-planned sector. The former consisted of the country's major and industries and the latter of the remainder of the economy. The adoption of a Soviet-type economic strategy had its parallels in political and social policies. A new bureaucracy had to be created and staffed with able administrators. The revolution brought about the loss of a sizable group of technical and adminis• trative talent which had to be replaced. During this period the party became top-heavy with cadres, and the party was unevenly distributed throughout the country, with its greatest strength in the major cities. Too much attention was paid to central state-owned industries and not enough to local industries, , 7 8 commerce, educational and cultural , and other sectors. It was further realized that the planning should be made less detailed with more flexibility at lower levels of the economic system, in particular allowing lower echelons greater flexibility in setting their own • gets. But the leadership did not react until late in 19 57 with a series of far-reaching measures. The changes decided on at this time occurred in the context of a general political and social situation. The most significant element was the steady growth of a regional and local party apparatus that was becoming increasingly important at the lower levels of the system. Decentralization aimed not only at improving economic coordination by reducing central control, but mainly at creating conditions which would activate and speed up economic develop• ment at the most basic levels of the economy: agriculture, and medium- and small-scale industry. Rapid development of agriculture and regional industry would not only create an imbalance that could not be rectified because of the distant and cumbersome machinery of the state, but would generate constantly changing supply and demand conditions necessitating great flexibility at the lowest possible levels. Furthermore, rapid economic development would create demand for new products that could not be supplied on a national scale. It was then necessary to find substitute materials within the local economic region. But this meant a shift in relative emphasis from large- to medium- and small-scale industry, in relative emphasis from industry in general to agriculture, in relative emphasis from city to village. The emphasis on small-scale and rural industry in China cannot be fully understood without discussing the concept of "walking on two legs." The concept stands for balance of five relationships• industry and agriculture, and light industry, large enterprises and medium-to-small enterprises, modern production methods and indigenous methods, enterprises run by the central government and those run by local authorities. The first relationship is usually explained in the following way. 2 China is still a large agricultural country and a majority of her population lives in the countryside. Agriculture must be rapidly