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Market Reforms in Socialist Societies: Comparing China and Hungary
JOIJRNAL
OF COMPARATIVE
ECONOMICS
14, 5 14-j 17( 1990)
PETER VAN NESS, Ed., Market R&wu in Socialist Socic~ties: C‘ornpuring C’hinu und Hungupc2. Boulder: Lynne Rienner Publishers, 1989. xi + 233 pp., index. $23.50. In recent years no student ofthe socialist economies would have questioned the proposition that it was in Hungary and China that market-oriented reforms had gone the farthest. It was therefore only logical to undertake a comparative study of the problems of system transformation in the two economies. and. furthermore, to draw some general conclusions on their reform processes. Even after the violent reverse of the modest democratization in China. the Beijing leadership pretends to adhere to the economic reform. Yet there is no doubt that the political setback brings about, if not a complete halt. at least a major slowdown of the reform process in the economy. Although the actual situation has therefore changed, a comparative analysis that had been worked out before these new events might still be of considerable value. Let us see to what extent the study under consideration meets our expectations. According to the editor’s introduction. the book under review is to be traced back to a conference held at the University of Denver in 1985: the papers were later revised for publication, and “several additional chapters were commissioned to complete the analysis.” Van Ness rightly asserts that “China is different [from Hungary] in virtually every way but one. They have a similar social system, comprised of a Leninist communist-party state and a Sovicttype command economy, and as a result. despite their many differences, China and Hungary face many of the same kinds of economic and political problems.” It is beside the point that this assertment is no longer correct after the recent radical changes, in totally opposite directions. in the two countries. Setting the agenda of the volume the editor raises the following questions: “Why have communist governments introduced market reforms in their socialist societies. and what specifically are they trying to achieve? What problems do they expect the market to help them solve, and how? How successful have they been? What are the implications of adopting this approach to socialist development of the Marxist objective of reaching communism?” Before assessing how conclusive the answers to these questions given in this book are. let us examine the individual contributions. Part one of the volume contains three chapters focusing on the changes of the economic system in Hungary and on the consequences of the various reform steps. Starting with a thorough description of the establishment of the
BOOK
REVIEWS
515
Soviet-type command economy after the war, including all the failures resulting from this system, by G. Ranki, and followed by a competent analysis on the relationship between the reforms introduced in 1968 and the results reflected in subsequent economic performance by P. Marer, the third study, by Kornai, deals with a problem corresponding best to the objective of the book, namely with the difficulties arising in the course of the transformation of the command system to a market-oriented one. Commenting on the three chapters, G. Barany discusses the political aspects of economic change. It is worthwhile to mention briefly some of the propositions formulated by the respective authors. Marer shows convincingly in his contribution that “the reforms, so far, (have) fallen short of achieving their intended purpose,” and that the main reason for the poor results lies in the circumstance that “much of the economy is not operated by an actual market mechanism.” The virtue of Kornai’s contribution is to be found in his generalization of the Hungarian experiences based on a profound theoretical concept. His pleading for a more consequent reform course aiming at market solutions, including an extension of the private sector, is to be applied to all economies undergoing the transition towards market control, i.e., to the Chinese case as well. It should be mentioned that Barany supports the advocates of market reforms, yet in contrast to Kornai he does not believe in the feasibility of a radical reform for political reasons. The following chapters on China, part two, do not offer a similarly coherent position as do the studies on Hungary. The first contribution, written by J. Chen, describes, not too thoroughly, some features of the reform processes in the Soviet Union and in Yugoslavia and concludes with an outline of the Chinese reforms, although no explicit comparison with those of the USSR and Yugoslavia is offered. P. Van Ness and S. Raichur try to find an answer to the questions, which of three alternative “strategies,” I would rather say “systemic concepts,” the Stalinist, the Maoist, and that of Market Socialism, is most appropriate, from the Marxist viewpoint, for achieving full communism. Disregarding the actual indifference among Eastern scholars toward such an ideological objective as compared to the short term striving for an efficient socialist economy, the authors admit that the historical record has hitherto demonstrated failure in all three cases. The different nature and seriousness of these failures, namely the catastrophic results of the Great Leap under Mao, the crises caused by the Stalinist command system, and some difficulties accompanying market reforms, are badly neglected. The authors nevertheless reject only two of them: the command and the market concept, the latter because of resistance toward “taking the capitalist road.” On the other hand, the line of Chairman Mao is the one they advocate. A fairly different issue, that of human rights, is treated by S. C. Thomas. His findings based on available data are not surprising. Whereas “China made impressive gains in social and economic rights . . . civil and political rights levels were
516
BOOK
REVIEWS
much more modest . .” (this was written before the bloody events of June 1989). The commentator of this part, Su Shaozhi describes once more the concept of the Hungarian reform. relying on reform-minded Hungarian economists instead of examining the comparative aspects of the two reforms as the title of his comment promises. Part three of the book brings a new dimension to the problem of reform processes in socialist societies, i.e., the international context. In a thorough and extensive study, Valerie Bunce investigates the dynamics of the relationship between Soviet power and the dependent bloc states over the whole postwar period. The author distinguishes the years of Stalinism (I 945-1953) the phase of “deviation from the Ideal” ( 1953-1964) and finally the period in the course of which “the empire strikes back” (1964-1982). The crucial questions are, to her mind, the Soviet gains and losses from their control over the empire. It appears that the Soviets were subject to “the law of declining returns over time,” a general law formulated in the literature on empires which Bunce considers to be applicable “even to those empires that are ideally structured to maximize imperial interests” as it was the case in the Soviet bloc. However, as the author concludes: ‘Soviet losses from empire were not Eastern Europe’s gains . . Instead, the resources of a/l the states in the bloc declined, and that decline was accompanied by a decline in Eastern Europe’s value to the Soviet Union.” There are other interesting propositions in this study, e.g., the tendency of an increasing share of trade with the West in the late 1970s although more recent data would have shown the limits of this trend. In the following statistical investigation, W. Loehr and P. Van Ness attempt to “assess the net economic cost of the attempt at self-reliance made by the Maoist leadership . . . (from) 1960- 1976 by comparing economic performance in that period with that of China’s economic performance since . . 1949.” More precisely, the authors compare performance in 1960- 1976 with that in 1950- 1980. Their conclusion is that albeit China did pay a certain price for its self-reliance policy. nevertheless: “the Marxist economic policies during the Cultural Revolution helped to reduce the adverse effects on annual economic growth rate in the period 1966-1970.” The reviewer can by no means accept this proposition both for methodological reasons, choice of periods, definition of variables, etc., and because of the interpretation of evidence, e.g., quoting Thomas’ and Heymanns’ findings which do not conform with the available data. A more differentiated picture on China’s “Open Door Policy.” drawn by G. Huan, shows the achievements,and failures resulting from the radical opening of China’s economy to world markets. The author pleads for a continuation of this liberal course in foreign trade. Huan’s warning against an eventual political backlash has proved its legitimacy. Caporaso’s comment draws out themes that to his view were neglected. including the problem of late development implying the option of a semiprotectionist strat-
BOOK
517
REVIEWS
egy for underdeveloped countries, and some issues of the social consequences of market mechanisms. J. Edelstein focuses on the future of socialism in the concluding chapter. Not all scholars would agree with his proposition that a centrally planned economy was useful in the past because its “superior capacity to mobilize resources and the absence of alternative methods of organization for economic development.” As to the prospects of the socialist economies the author sees different options: the way of social democracy, implying a combination of social security and economic efficiency, the latter to be reached by means of the market, or two other alternatives both based on Marxist traditions: conservative Marxism, which advocates accumulation and efficiency criteria in the initial stage whereas social justice has to be envisaged subsequently, and voluntaristic Marxism, i.e., the Mao-Guevara strategies, denying market forces in favor of revolutionary consciousness. Edelstein expects considerable difficulties in the near future stemming from the product mix of market and social goals. In the longer term he seems to tolerate central planning, although his expectations regarding preferences do not give a clear idea of his views. To sum up, the volume under review contains several interesting chapters, in particular those on Hungary. The contributions dealing with China are, however, not very helpful. It is also regrettable that the comparative view appears only in the introduction of the volume and the appendix, which does not give a thorough set of data, but not in the individual chapters. Taking the actual debates that are taking place in the Soviet Union and Eastern Europe into account, only Kornai’s and Marer’s contributions reflect the core of the problem. There are some interesting chapters in the third part dealing with international relations, especially the study by Valerie Bunce, but this topic goes beyond the central theme of the book. JrRi Frankfurt,
FRG
KOSTA
OF COMPARATIVE
ECONOMICS
14, 5 14-j 17( 1990)
PETER VAN NESS, Ed., Market R&wu in Socialist Socic~ties: C‘ornpuring C’hinu und Hungupc2. Boulder: Lynne Rienner Publishers, 1989. xi + 233 pp., index. $23.50. In recent years no student ofthe socialist economies would have questioned the proposition that it was in Hungary and China that market-oriented reforms had gone the farthest. It was therefore only logical to undertake a comparative study of the problems of system transformation in the two economies. and. furthermore, to draw some general conclusions on their reform processes. Even after the violent reverse of the modest democratization in China. the Beijing leadership pretends to adhere to the economic reform. Yet there is no doubt that the political setback brings about, if not a complete halt. at least a major slowdown of the reform process in the economy. Although the actual situation has therefore changed, a comparative analysis that had been worked out before these new events might still be of considerable value. Let us see to what extent the study under consideration meets our expectations. According to the editor’s introduction. the book under review is to be traced back to a conference held at the University of Denver in 1985: the papers were later revised for publication, and “several additional chapters were commissioned to complete the analysis.” Van Ness rightly asserts that “China is different [from Hungary] in virtually every way but one. They have a similar social system, comprised of a Leninist communist-party state and a Sovicttype command economy, and as a result. despite their many differences, China and Hungary face many of the same kinds of economic and political problems.” It is beside the point that this assertment is no longer correct after the recent radical changes, in totally opposite directions. in the two countries. Setting the agenda of the volume the editor raises the following questions: “Why have communist governments introduced market reforms in their socialist societies. and what specifically are they trying to achieve? What problems do they expect the market to help them solve, and how? How successful have they been? What are the implications of adopting this approach to socialist development of the Marxist objective of reaching communism?” Before assessing how conclusive the answers to these questions given in this book are. let us examine the individual contributions. Part one of the volume contains three chapters focusing on the changes of the economic system in Hungary and on the consequences of the various reform steps. Starting with a thorough description of the establishment of the
BOOK
REVIEWS
515
Soviet-type command economy after the war, including all the failures resulting from this system, by G. Ranki, and followed by a competent analysis on the relationship between the reforms introduced in 1968 and the results reflected in subsequent economic performance by P. Marer, the third study, by Kornai, deals with a problem corresponding best to the objective of the book, namely with the difficulties arising in the course of the transformation of the command system to a market-oriented one. Commenting on the three chapters, G. Barany discusses the political aspects of economic change. It is worthwhile to mention briefly some of the propositions formulated by the respective authors. Marer shows convincingly in his contribution that “the reforms, so far, (have) fallen short of achieving their intended purpose,” and that the main reason for the poor results lies in the circumstance that “much of the economy is not operated by an actual market mechanism.” The virtue of Kornai’s contribution is to be found in his generalization of the Hungarian experiences based on a profound theoretical concept. His pleading for a more consequent reform course aiming at market solutions, including an extension of the private sector, is to be applied to all economies undergoing the transition towards market control, i.e., to the Chinese case as well. It should be mentioned that Barany supports the advocates of market reforms, yet in contrast to Kornai he does not believe in the feasibility of a radical reform for political reasons. The following chapters on China, part two, do not offer a similarly coherent position as do the studies on Hungary. The first contribution, written by J. Chen, describes, not too thoroughly, some features of the reform processes in the Soviet Union and in Yugoslavia and concludes with an outline of the Chinese reforms, although no explicit comparison with those of the USSR and Yugoslavia is offered. P. Van Ness and S. Raichur try to find an answer to the questions, which of three alternative “strategies,” I would rather say “systemic concepts,” the Stalinist, the Maoist, and that of Market Socialism, is most appropriate, from the Marxist viewpoint, for achieving full communism. Disregarding the actual indifference among Eastern scholars toward such an ideological objective as compared to the short term striving for an efficient socialist economy, the authors admit that the historical record has hitherto demonstrated failure in all three cases. The different nature and seriousness of these failures, namely the catastrophic results of the Great Leap under Mao, the crises caused by the Stalinist command system, and some difficulties accompanying market reforms, are badly neglected. The authors nevertheless reject only two of them: the command and the market concept, the latter because of resistance toward “taking the capitalist road.” On the other hand, the line of Chairman Mao is the one they advocate. A fairly different issue, that of human rights, is treated by S. C. Thomas. His findings based on available data are not surprising. Whereas “China made impressive gains in social and economic rights . . . civil and political rights levels were
516
BOOK
REVIEWS
much more modest . .” (this was written before the bloody events of June 1989). The commentator of this part, Su Shaozhi describes once more the concept of the Hungarian reform. relying on reform-minded Hungarian economists instead of examining the comparative aspects of the two reforms as the title of his comment promises. Part three of the book brings a new dimension to the problem of reform processes in socialist societies, i.e., the international context. In a thorough and extensive study, Valerie Bunce investigates the dynamics of the relationship between Soviet power and the dependent bloc states over the whole postwar period. The author distinguishes the years of Stalinism (I 945-1953) the phase of “deviation from the Ideal” ( 1953-1964) and finally the period in the course of which “the empire strikes back” (1964-1982). The crucial questions are, to her mind, the Soviet gains and losses from their control over the empire. It appears that the Soviets were subject to “the law of declining returns over time,” a general law formulated in the literature on empires which Bunce considers to be applicable “even to those empires that are ideally structured to maximize imperial interests” as it was the case in the Soviet bloc. However, as the author concludes: ‘Soviet losses from empire were not Eastern Europe’s gains . . Instead, the resources of a/l the states in the bloc declined, and that decline was accompanied by a decline in Eastern Europe’s value to the Soviet Union.” There are other interesting propositions in this study, e.g., the tendency of an increasing share of trade with the West in the late 1970s although more recent data would have shown the limits of this trend. In the following statistical investigation, W. Loehr and P. Van Ness attempt to “assess the net economic cost of the attempt at self-reliance made by the Maoist leadership . . . (from) 1960- 1976 by comparing economic performance in that period with that of China’s economic performance since . . 1949.” More precisely, the authors compare performance in 1960- 1976 with that in 1950- 1980. Their conclusion is that albeit China did pay a certain price for its self-reliance policy. nevertheless: “the Marxist economic policies during the Cultural Revolution helped to reduce the adverse effects on annual economic growth rate in the period 1966-1970.” The reviewer can by no means accept this proposition both for methodological reasons, choice of periods, definition of variables, etc., and because of the interpretation of evidence, e.g., quoting Thomas’ and Heymanns’ findings which do not conform with the available data. A more differentiated picture on China’s “Open Door Policy.” drawn by G. Huan, shows the achievements,and failures resulting from the radical opening of China’s economy to world markets. The author pleads for a continuation of this liberal course in foreign trade. Huan’s warning against an eventual political backlash has proved its legitimacy. Caporaso’s comment draws out themes that to his view were neglected. including the problem of late development implying the option of a semiprotectionist strat-
BOOK
517
REVIEWS
egy for underdeveloped countries, and some issues of the social consequences of market mechanisms. J. Edelstein focuses on the future of socialism in the concluding chapter. Not all scholars would agree with his proposition that a centrally planned economy was useful in the past because its “superior capacity to mobilize resources and the absence of alternative methods of organization for economic development.” As to the prospects of the socialist economies the author sees different options: the way of social democracy, implying a combination of social security and economic efficiency, the latter to be reached by means of the market, or two other alternatives both based on Marxist traditions: conservative Marxism, which advocates accumulation and efficiency criteria in the initial stage whereas social justice has to be envisaged subsequently, and voluntaristic Marxism, i.e., the Mao-Guevara strategies, denying market forces in favor of revolutionary consciousness. Edelstein expects considerable difficulties in the near future stemming from the product mix of market and social goals. In the longer term he seems to tolerate central planning, although his expectations regarding preferences do not give a clear idea of his views. To sum up, the volume under review contains several interesting chapters, in particular those on Hungary. The contributions dealing with China are, however, not very helpful. It is also regrettable that the comparative view appears only in the introduction of the volume and the appendix, which does not give a thorough set of data, but not in the individual chapters. Taking the actual debates that are taking place in the Soviet Union and Eastern Europe into account, only Kornai’s and Marer’s contributions reflect the core of the problem. There are some interesting chapters in the third part dealing with international relations, especially the study by Valerie Bunce, but this topic goes beyond the central theme of the book. JrRi Frankfurt,
FRG
KOSTA