File spoon-archives/marxism-general.archive/marxism-general_1996/96-10-19.135, message 47


From: "Rosser Jr, John Barkley" <rosserjb-AT-jmu.edu>
Subject: Re: Hyperinflation & Investment Controls in China
Date: Thu, 17 Oct 1996 17:27:35 -0400 ()


     Louis G. and I are converging, probably much to his 
dismay (don't worry, LG, I'll try not to lead you into any 
cow patties, :-)).  A few minor disagreements with his post 
below.
     1)  The de facto federalist structure in China is a 
continuation or expansion of something that has essentially 
been in place all along, with the possible exception of a 
brief period in the 1950s, at the height of imitating the 
Stalin-Soviet model, the remnants of which form the core of 
the current centrally-owned-controlled SOE sector.
     The old saying, increasingly true now is, "The 
mountains are high and the emperor is far away."  
     Starting with the Great Leap Forward and continuing 
later, Mao encouraged a decentralization of 
industrialization which coincided with a much looser form 
of central planning than took place in the USSR.  This was 
partly motivated by fear of military aggression from the US 
and later from the USSR as well.  Much of this was really 
botched in its initial inception, especially in the 
disastrous (up to 30 million dead, possibly) GLF.  But in 
the longer run this played an important foundational role 
in the current success of the TVEs.
     I think that there is a problem with Louis's analysis 
of inflation and decentralization.  One can hyperinflation 
in a transitional economy in almost any case.  Certainly we 
have seen cases (Yugoslavia, arguably parts of the FSU at 
certain stages) where some mishmash of political 
decentralization fed hyperinflation in soft budget 
constraint environments.  But it is perfectly possible for 
a fully centrally politically dominated market socialist 
economy to hyperinflate via the soft budget constraint.  
Poland in the late 1980s is an example and Ukraine in 
recent years may be also.  It is simply a matter of the 
central authorities playing the soft budget constraint game 
very loosely and the firms overinvesting, borrowing 
excessively, etc.
     Finally, Louis G. says that all of this "must" occur 
within "Chinese Communist culture and traditions," etc.  
Well, authoritarian regimes from Singapore to Beijing are 
now justifying authoritarianism on "Asian" and "Confucian" 
traditions (there is a big neo-Confucian revival in China 
going on).  But this may be just an excuse for suppressing 
the democratic movements that are popping up in various 
countries.  An especially embarrassing pressure point in 
this regard right now for the PRC leadership has been the 
recent assertiveness by pro-democracy activists from Hong 
Kong and Taiwan, asserting greater nationalism than the 
Beijing leadership in the territorial dispute with Japan 
over the multiply named islands lying to the northeast of 
Taiwan.
Barkley Rosser 
On Thu, 17 Oct 1996 15:26:09 -0400 (EDT) Louis R Godena 
<louisgodena-AT-ids.net> wrote:


> 
> Professor Rosser,  obviously,   is continuing to insist on that old
> totalitarian model to explain the evolutionary changes occuring in Chinese
> political society.    Perhaps a lifetime spent among cows has inured him to
> the possibilities of change in unfamiliar cultures.
> 
> It is clear that China now has a de facto federalist system in which the
> central government specializes in political responsibilities and the local
> governments specialize in economic responsibilities.
> 
> This has a number of important normative implications.    Under the
> condition of political authroritarianism,  this combination of economic and
> fiscal decentralization with political centralization may be an optimal
> governance structure.     Economically,  a degree of political
> centralization is useful to alleviate coordination problems when economic
> agents lack financial self-discipline and when indirect macroeconomic
> policies are ineffective.    Premature political decentralization in the
> presence of soft-budget constraints may have contributed to runaway
> inflation in other reforming centrally planned economies.    Politically,
> the Chinese style of federalism can also be optimal because fiscal
> decentralization helps check the enormous political discretion in the hands
> of the central government,  on which the Chinese political system itself
> places no formal constraints.
> 
> We have already seen that the origins of inflation arise from the incentives
> for over-investment that arise at the local level and the difficulties faced
> by the center in monitoring and sanctioning profligate local behavior.
> Indeed, I would argue that the present configuration of Communist Party
> relations at virtually every level is more or less predicated upon the
> salient economic fact of the reforming economy;  namely,  the all important
> need to control a robust economy (meaning, primarily,  the need to keep
> inflation under control) while maintaining both robust economic growth and
> the political supremacy of the Party.    This of course has to be done
> within the context of the culture and traditions of Chines Communist
> society.    That the Chinese have thus far done so (and rather successfully)
> is a continuing source of bafflement,  envy and perplexity to the rest of
> Asia and the US.
> 
> Louis Godena
> 
> 

-- 
Rosser Jr, John Barkley
rosserjb-AT-jmu.edu




   

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