Economic growth and distribution in China

Blitzer. C.R.. P.B. Clark and L. Taylor, eds , 1775, Economy-wide models and developmu,, planning (Oxford University Press, New York aad London). Lasaga, M.. 1980, The commodity problem and economic goal attainment in Chile: An integrated econometric investigation (Lexington-Heath, Lexington, MA) forthcoming.

Jere R. Behrman University of Pennsylvania

Nicholas

R. Lardy, ed., Chinese Economic Planning, Translations’from Chitranslated by K.K. Fung (M.E. Sharpe, White Flains, NY, 1978) pp. xii + 268, $20.00.

hua

Ching-chi,

Nicholas R. Lardy, Economic Growth and Distribution in China (Cambridge University Press, New York and London, 1978) pp. x + 244, $18.95. Together, the two books under review provide considerable insight into the nature and function of China’s planning system, especially as it was first established and then modified during the 1950s. Although mutually complementary, they differ greatly in scope and purpose. Chinese Economic Planning is a translation of parts of two series of lectures on the principles and methods of economic planning that first appeared in the journal Chi-huu Ching-chi (Planned Economy) iit the years 19551956 and 1957-1958, respectively. The first series is entitled ‘Lectures on National Economic Planning’ and includes 17 articles, of which 10 (the Introduction mistakenly says 9) are translated in the present volume, covering such topics as methods of national plan formulation, industriai and agricultural production planning, labor planning, price planning, etc. These tend to be fairly basic and general, occasionally relying heavily on Soviet materials, even for examples where Chinese data would have been more appropriate, as in the case of the definition of ‘labor resources’, where Soviet practice in sp. cifying the working ages of urban and rural residents is mentioned but not the Chinese (p. 70). The second series is entitled ‘Lectures on Basic Knowledge of National Economic Plan Tables’, and contains 14 articies, 10 of them translated here. These concern a range of issues similar to the first series, but also cover cadre planning tables and cultural, educational and health services planning. The articles as a whole are very useful not only in conveying a sense of the way economic planning was approached in a poor and largely agrarian country with limited statistical resources [‘Due to the present lack of survey and statistical data, the 1958 tables do not require an estimate of the number of staff and workers employed by agricultural cooperatives’ (p. 215)], but. also in providing a benchmark for observing both continuity and change in the Chinese planning system. The editor hypothesizes that there is gre:tter

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continuity than generally believed between the planning system ofthe1950s and that of later years, as -.vell as some return to the early principles following the turmoil of the Cultural Revolution and of the transition to the post-Mao leadership (pp. x-xi). Both the recent re-emergence of political and economic leaders of the First Five-Year Plan period, and the extensive praise now accorded to the economic policies of that period in contradistinction to those that followed, provide justification for this view. At the sa.rn~ time, it is also clear that China is currently searching for methods of integrating market relations with central planning and expanding the autonomy of individual enterpf,ises. both to degrees far beyond what was codified in the 1950s planning principles. As the promine!tt Chinese economist, Xue Muqiao, recem!! wrote (Re~mitr Rihuo. June 10, 1980, p. 5): ‘The economic managcment :$ystem is in fact the concrete realization (jutilzua) of socialist public ownership, and involves a whole series of theoretical and practical questions which no country in the world has yet worked out clearly, nor have we’. In some respect, considerable change in approach is already evident between the two series of lectures. For example, the 1955 lecture on labor planning begins with its ‘two basic tasks’: determining the growth of labor productivity by sector and allocating labor (p. 61). At that time it was still belie\red that large-scale capital construction and industrialization would quickiy solve the problem of unemployment inherited by the People’s Republic. By 1957 it had become clear that unemployment was a stubborn problem that would not easily be solved: accordingly, the 1957 lecture on labor and wage planning begins by pointing out that ‘China is a populous and labor abundant country that is still i’ery backward economically’, and it inserts before the above-metttioned ‘two basic tasks’ a prior one: ‘to rationally utilize China’s labor resources and arrange for labor employment’ (p. 36). Siinilarly. the earlier optimism regarding the duty of the wage plan to ‘guarantee continuous growth of the wages of the workers and staff on the basis of continuous growth of production and labor oroductivity’ (p. 77) gives way to the later concern with ‘harmonizing the worker-peasant relationship and consolidating the worker-peasant alliance’ (p. 206), a principle that provided partial justification for the virtual freeze on urban wages and salaries t ‘r some two decades. Nor is there any mention in the 1957 lecture of Poe rates, which are highly touted in the 1955 lecture on wage planning as ‘an advanced wage system’ (p. 84) to be instituted wherever possible. The translation of this useful book is generally careful and clear, but would have benefited from additional explanatory notes by the editor and fromp‘trenthetical insertion of the original Chinese in ambiguous or unclear passages.

Book reviews

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Econondc Growtlz urzd Distrihutiorz in Clzincc, while commenting perceptively on a great many aspects of China’s development approach, is in its principal concern more narrowly focused than its title suggests. Lardy’s interest is in the evolution of China’s fiscal system; in particular, the fiscal relations between the central government and the provinces. The larger substantive question lying behind this structural one is the nature of the trade-off between ‘pure’ growth and equitable distribution. It is Lardy’s thesis that China has given considerable weight to achieving equitable regional balance in its development, with respect to both delivery of social services and industrial growth. To that end, he argues, the center has retained the power to carry out far-reaching reallocations of resources from relatively rich and industrialized provinces to relatively poor and backward ones; and, in fact, has done so, even after a series of decentralization measures in the late 1950s that were widely interpreted as having substantially curtailed the center’s fiscal redistributive powers. The nature of the evidence is twofold. First, Lsrdy examines the structure of central-provincial fiscal relations as they evolved after the establishment of the People’s Republic and shows that the decentralization refi?rms in fact preserved broad fiscal powers for the central government. Thus, even without looking at the results of the reforms, it seems apparent thai the center intended to give up in them far less authority than was commonly thought. Lardy summarizes their purpose as ‘an attempt to decentralize operational decision-making power to the enterprise level and coordinating functions to the provincial level while retaining a high degree of centralized control of the economic policy instruments that could be used to achieve distributive goals and to prevent the emergence of what Peter Wiles calls “subordinate autarky”’ (p. 138). The second kind of evidence is statistical. Lardy reasons that had the provinces obtained substantially more control over their resources, the result would have been an increasing polarization between developed and backward provir ;es in per capita social expenditures and investment expenditures, relative to the highly centralized situation of the mid-1950s. He presents data for 1958 and 1959 - the years immediately following the reforms - on provincial per capita social expenditures and provincial shares of national investment; neither reveals the hypothesized polarization. Moreover, data on provincial revenue-sharing rates in 1959 and 1960 show the more developed provinces continuing to remit high percentages of their revenues to the center while the less developed ones received substantial subsidies, as had been the case before the reforms. For the 1960s and the first half of the 70s data are much more sparse. Lardy believes the center continued to exercise broad redistributive powers. He shows that, on the whole, the less industrialized provinces achieved somewhat higher industrial growth rates than the more industrialized ones

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during the 17 years from 1957 to 1974, so that the population-weighted coefficient of variation of provincial industrial output per capita fell by about five percent (however, it had fallen almost twice as much during the five years before the reforms - see pp. 153-155). Such a convergence, even if slight. is unlikely to have occurred had rich and poor provinces had autonomous control over their own resources. A smattering of available provincial revenue-sharing rates for the early 1970s also implies the continuation of substantial subsidization of poor provinces by rich. In his final chapter, Lardy discusses China’s policies toward income distribution more broadly, touching on the urban-rural gap, wage and price policy, the impact of land reform and collectivization, as well as government fisch! poiicy., and he attempts here to put China’s distributive record in comparative perspective. Although written before some of the recent revelations from China about economic failures over the past two decades, this is an informati:le and sensible c‘iscussion that serves as a corrective to the current official ’ .hinese tendency toward wholesale denigration of past policies of centralization and ‘egalitarianism’. Questioning the universality of the trade-off between economic growth and distributive equity, Lardy points out that ‘the Chinese have been relatively successful in simultaneously pursuing both goals’, achieving a long-run growth rate of abotit 6 percent while moving strenuously to reduce intersectoral and interregional inequahties (p. 192). At the same time, he is properly loathe to draw hard and fast conclusions about the personal disiribution of income in China in view of the lack of data, and he recognizes the continuing existence of substantial differentials of various kinds in Chinese society. Lardy is sceptical about the relevance of China’s experience for other developing countries, pointing out that the nature of China’s rural-based revolution, as well as of deeply ingrained historical and cultural factors, must be gih-en considerable weight in explaining China’s own policies. It might be added that scepticism about the ‘transferability’ of China’s approach is strengthened by the current evolution of the latter toward a more conventional, market oriented model. Indeed, a continuing theme in the current Chinese critique of past policy is precisely the latter’s allegedly excessive egalitarianism. While Lariiy clearly does not in thib: ‘c $ok share the judgmer,t that redistribution was excessive, he certainly agrees ihat there was a great deal of it. In this respect, he may in fact overstate the case, not in presenting the data but in interpreting them. ‘ihis is because he puts excltrsi;le focus in. discussing provincial industrialization on relatire growth rates, p:ilying rlo significant attention to absolute differentials and their change over time. Where the latter are mentioned at all (p. 161), they ar L quickly dismissed as not of interest for the purpose of ‘drawing inferences aSo,!t the ability of the central government to redistribute resources among regions’. This is surely an exaggeration, since the

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existence of large absolute gaps provides a principal political justification for the exercise of central redistributive power; and, if the absolute differentials continue to grow, rich province objections to redistribution seem that much less legitimate. The fact is that absolute gaps increased greatly during the period studied in this book. During the entire period 1952-1974, for example, each of the two most industrialized province-level units - Shanghai and Liaoning nclded to its industrial output more than the total 1974 industrial output of any of the other 25 provinces. Therefore, the statement that ‘centrally administered policy instruments were used to achieve a significant reduction of disparities in per capita output among different regions’ (p. 4) is rather misleading. True, if relative convergence continued !“ng enough, it would eventually lead to a decline in absolute gaps; but Keynes’ well-known dictum about the long run should .sLrggest caution in predicting such an outcome. The continuing growth of absolute regional (I&parities in China, despite the strenuous efforts well documented by Lardy to achieve greater interregional equity, serves as a reminder of the difficulty of achieving this goal in the early stages of development. It is also an important factor to keep in minct 9s we watch China’s shift to more market-oriented policies. Cat1 Riskin Queens College and Columbia University

Wouter van Ginneken, Rural and Urban Income Inequalities in Indotwk. Mexico, Pakistan, Tanzania and Tunisia (International Labour Office. Geneva, 1976) pp. vii + 67, 15 Swiss francs. The scope of this brief study is extremely broad. The author attempts not only to analyze rural-urban differences in income distribution and absolute living sta:..Jards in live countries (Chapters 2 to 5), but also to examine some of the ‘economic’ factors contributing to these differences (Chapter 6) and to prescribe policy recommendations (Chapter 7). The data consist of a single expenditure survey conducted in each of the five countries between 1964 and 1971, and the author uses both Gini indices and the Theil index of inequality to measure country-wide income inequalities and their rural-urban components. On the basis of Gini coefficients he concludes that, with the exception of Pakistan, overall inequalit, is positively associated with the level of per capita GDP. Urban inequalities are greater than rural inequalities in the two more urbanized, higher income countries (Mexico and Tunisia) as well as in Pakistan, whereas the Gini coefficients of expenditure in rur::tl and urban areas are roughly equal in the two predominantly rural countries (Indonesia and Tanzania). Decmposition