John Hall Chinese and Hungarian Reforms

SÜDOSTEUROPA, 38. Jg., 5/1989 John Hall Chinese and Hungarian Reforms: Parallels and Divergencies Introduction Reform has come to take on a significant meaning for the planned economies. When institutions such as production units or the banking system are reorgan ized, a market mechanism is introduced, or new price relations are establish ed, these characteristically develop first through reform discussions, and if they are approved by the ruling political party, are then introduced as de facto reforms. In this way, reforms have come to play the crucial role in the institu tional evolution of the planned economies. Of planned economies with reforms oriented towards the pragmatic task of improving economic performance, the programs in Hungary and China have tended to be the most similar. The exaggerated differences in the two coun tries, arising from the disproportionate sizes of populations and geographical surface areas, have been offset by the parallel nature of the reform tendencies. Contributions by Balassa and Komai and Daniel have also emphasized the parallel direction of economic reforms in Hungary and China.1 However, the pattern appears to change in the second half of the 1980s as the reform programs in these two countries diverge. Divergence is largely a re sult of the increased pace of Hungarian reforms which have also taken on a substance and character heretofore unknown in the planned economies - to the extent that we can observe taking place in Hungary an actual shift to a new economic, social, and political paradigm. In contrast, the Chinese re forms appear to have run aground. The limits of Chinese reforms appear to be met at the points at which the economy can no longer effectively be controlled through central mandates. The problems of aggravated inflation, trade defi cits, unemployment, income inequality, and corruption are noted as associated side-effects of Chinese reforms. Both Koväcs and Harding write of reform “waves” in Hungary and China.2 Waves are argued to emerge as reforms are first introduced to solve problems 1 Bela Balassa: “China’s Economic Reforms in a Comparative Perspective”, Journal of Comparative Economics, Vol. 11 (1987) pp. 410-426. and J. Komai and Zs. Daniel: “The Chine se Economic Reform as seen by Hungarian Economists (Marginal Notes to Our Travel Dia ry)”, Acta Oeconomica, Vol. 36, Nos. 3-4/1986, pp. 289-305. 2 “Reform Bargaining in Hungary: An Interview with Jänos Mätyäs Koväcs”, Comparative Economic Studies. Vol. XXVIII, No. 3/1986 pp. 25-42 and Harry Harding: China ’s Second Re volution: Reform After Mao, Washington, D. C.: The Brookings Institution, 1987, see especially Chapter 4 “The Course of Reform.”, pp. 70-95. 2 6 0 John Hall in th e p lan n ed eco n o m ies, su ch as slo w g ro w th in n et n atio n al p ro d u ct o r stag n atin g h o u seh o ld in co m es. Y et, w h en th e n eg ativ e side-effects o f lib erali zatio n arise, e. g . in flatio n , unemployment, etc., th ere lik ew ise em erg es a counter-tendency: th at is, a retrenchment an d ev en backtracking to th e trad i tio n al p lan n in g m o d el. W h ile C h in a cu rren tly ap p ears to b e in th e m id d le o f a tro u g h o f a refo rm w av e, H u n g ary is sailing fo rw ard , w ith n o sig n s o f retrenchment in sig h t. In H u n g ary , u n lik e in C h in a, w e can o b serv e th at th e asso ciated side-effects o f refo rm s, su ch as in flatio n, unemployment, an d in co m e in eq u ality are n o t slo w in g d o w n th e p ace o f refo rm s th ere. Q u ite th e co n trary , th e refo rm s in H u n g ary are in effect creating a p arad igm sh ift to a d ifferen t socio-economic m o d el. In co n trast, C h in ese lead ers h av e essentially erected a w all d esig n ed to b lo ck fu rth er, substantial eco n o m ic refo rm s, an d to ex clu d e p o litical refo rm s altogether, at least fo r n o w .3 T h ese comparative developments are ex am in ed in th is p ap er. T h e p arallel development o f th e refo rm ten d en cies are traced in th e first p art. T h e seco n d p art ex p lo res th e d iv erg en ce as it h as ap p eared in th e seco n d h alf o f th e 1 9 8 0 s. T h e th ird an d fin al sectio n ju x tap o ses th e ad v an ces o f th e H u n g arian refo rm p ro g ram to th e slowed-down C h in ese refo rm s. P arallel Developments R efo rm s w ere first in tro d u ced to agriculture b o th in H u n g ary an d in C h in a. In b o th co u n tries, agricultural refo rm s so u g h t to en d th e p ro b lem s asso ciated w ith th e ex cesses o f collectivization p ro g ram s. In th e case o f H u n g ary w h ere agricultural refo rm s w ere first introduced, fo rced d eliv eries o f agricultural g o o d s w ere en d ed as early as 1 9 5 7 in th e w ak e o f th e H u n g arian u p risin g in th e A u tu m n o f 1 9 5 6 . W ith th e rev ersal o f collectivization p o licies, a sy stem o f cooperatives w as o rg an ized b ased o n a profit-sharing p ro g ram am o ng its m em b ers (th o u g h th e state h as continually ex erted cen tral in flu en ce th ro u gh co n tro l o f p rices). P easan ts w ere also allo w ed to ex p an d p riv ate p lo ts to th e ex ten t th at a sig n ifican t p ro p o rtio n o f fo o d su p p lies, o v er th irty p ercen t o f an n u al o u tp u t, is p ro d u ced in th e p riv ate secto r an d so ld o n free m ark ets. T h e availability an d variability o f th e fo o d su p p ly resp o n d ed p o sitiv ely to th ese refo rm s. H u n g ar ian agriculture is still distinguished to d ay as th e m o st su ccessfu l ex am p le o f so c ialist agriculture. In 1 9 5 7 , refo rm o f C h in ese agriculture w as h ard ly th in k ab le. It w as d u rin g th is tim e th at M ao Z ed o n g w as p ro m o tin g th e development o f agricultural co m m u n es as an alternative m o d el to th e S o v iet kholkhozes w h ich w ere o rigi n ally in trod u ced w ith th e first collectivization d riv e after th e fo u n d in g o f th e 3 N ath an G ard els: “T h e P rice C h in a H as P aid : A n In terv iew w ith L iu B in y an ” New York Review of Books, V o l. XXXV, N o s, 2 1 an d 2 2 /1 9 8 9 , p . 3 4 . Chinese and Hungarian Reforms: Parallels and Divergencies 261 Peoples Republic in 1949.4 The communes were to function as a quickened step in the direction of establishing communism in China. It was thought that the communal organization of agrarian production could effectively bypass the problem of a relatively undeveloped material basis in socialist construc tion. However, the failures were astounding during the years 1959-61 at the time of the Great Leap Forward. An estimated twenty million Chinese peas ants famished as a consequence of poor harvests and a backward distribution system which could not move grain fast enough to the regions where it was needed. The first serious efforts at reforming China’s economy could not occur until after the death of Mao and the jailing of the Gang of Four.

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