Strange Rebels: 1979 and the Birth of the 21st Century (59 page)

Americans tend to believe that the values of their economic system require no elucidation, so they have never really seen the need to disseminate coherent arguments for free-market ideology. Thatcher’s supporters, emerging from a political environment where collectivist ideas dominated for so long, did. In the 1980s, operating like good evangelical missionaries of the nineteenth century, they took their model of the free-market think tanks and internationalized it. Anthony Fisher, the founder of the Institute for Economic Affairs,
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was invited in 1975 to run the Fraser Institute in Vancouver, Canada. The experiment was a success, and in 1977 he set up another one, called the International Center for Economic Policy Studies. The Center for Independent Studies followed in Australia at the end of the decade.

Building on these first cautious efforts, Fisher in 1981 then established the Atlas Economic Research Foundation, which served as the core of an international network of other free-market research centers modeled on the IEA. Within the course of the next decade, Atlas took credit for founding seventy-eight institutes around the world (thirty-nine of them in Latin America) and close ties with another eighty-eight. By the time the Berlin Wall fell in 1989, these institutes had spawned a global community of economic thinkers schooled in Hayekian principles, many of whom
soon fanned out into the countries of the former Soviet bloc to argue the virtues of capitalism.
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“What happened under Ms. Thatcher was an eye-opener, a revelation,” said Palaniappan Chidambaram, who served as India’s finance minister for a while during the 1990s. “After all, we had gotten our Fabian socialism from Britain.”
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Bolivian president Gonzalo Sanchez de Lozada cited Thatcher—along with the rise of the East Asian tigers and the reforms of Deng Xiaoping—as the precedent for the program of market-oriented reform that began in 1985.
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In Brazil in the 1990s, President Fernando Henrique Cardoso embarked on a privatization program that, measured by the value of the assets sold, amounted to twice the size of what Britain had done under Thatcher.
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Even continental Europe found it impossible to resist the positive impact of Thatcher’s privatization program. From 1985 to 2000, European governments sold off some $100 billion worth of state assets, including national champions such as Lufthansa, Volkswagen, Renault, Elf, and the Italian oil company ENI.
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But Thatcherism, even in its economic guise, was never just a theory about economics. Thatcher, as a clearly identifiable global brand, became the face of the market counterrevolution that swept the world. By the early 1990s, “Thatcherism” had already become identified, in places ranging from Latin America to Eastern Europe, with a particular set of policy choices.
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The Soviet military newspaper
Krasnaya Zvezda
had nicknamed her the “Iron Lady” even before she became prime minister, and it was a label that she was happy to appropriate to herself. And it as the “Iron Lady” that she is mentioned in the movie
Platform
, Chinese director Jia Zhang Ke’s marvelous paean to the early reform period in China. Thatcher’s mission excited intense emotions among both opponents and fans. Her polarizing effect was precisely what made her such an extraordinary agent of change. Even today, decades after her term in office, her name still has a unique capacity to provoke dispute, debate, or outright rejection. There are very few politicians who can claim the same.

T
he economic liberalization that began in China in 1979 had an almost immediate impact. Political economists often cite the success of China’s market-oriented transformation as evidence of the advantages of gradual economic reform. Actually, though, the early changes unleashed the productive potential of ordinary people with astonishing speed. This was especially true in the countryside, where the overwhelming majority of the Chinese lived. By October 1981, 45 percent of the agricultural production teams in China had gone over to the household-responsibility system. By the end of 1983, 98 percent of all the teams in the country (equaling 94 percent of the farming households) had adopted the new approach.
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Hundreds of millions of people were directly affected. If anything qualifies as economic “shock therapy,” surely this was it. But it was a form of therapy that was warmly welcomed by its intended patients.

To be sure, these farmers did not actually own the land they were working. But they could do much of their work as if they did. No longer did peasants have to obey the strictures imposed upon them by distant bureaucrats. Production of grain soared by stunning margins in the space of just a few years. This reflected, perhaps, the priorities established by China’s central planners, who for years had emphasized grain to the virtual exclusion of all other crops. But there were other dramatic manifestations of the new policy. Now farmers could grow whatever made sense under
their own economic and climatic conditions. Suddenly, a whole range of other foodstuffs, long neglected, became available in the private markets that proliferated across China. Farmers in Guangdong now grew sugarcane in addition to rice. Northerners cultivated not only wheat but also cabbage and eggplant, mushrooms and beets. “Sideline occupations” like fish farming increased the range of available products and boosted farmers’ revenues. Favored meats like pork or goose, once an unthinkable luxury for most Chinese, became widely available. Within the course of a single decade, China transformed itself from a country where millions of its citizens lived on the verge of starvation to one where its citizens could easily feed themselves and still have plenty of food left over for export.

Du Runsheng—a leading reformer who first proposed returning to the household-responsibility system back in 1978, when it still seemed nearly unthinkable—watched with satisfaction as peasants took advantage of the new freedoms offered by the reforms in the countryside. In 1982 he toured a farming region in Fujian Province.
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He visited a private poultry business that was producing 1.2 million chickens per year. The founding capital of the company was the modest sum of 28,000 yuan, contributed by the fourteen original shareholders. Nearby was a state farm that had built its own chicken hatchery, using several hundred thousand yuan in state funds. It produced only 500,000 chickens per year.
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This sort of productivity gap was characteristic, and it soon doomed the states overall control of agriculture.

The unloved People’s Communes, the rural cooperatives established by Mao in the Great Leap Forward, melted away like spring snow in the course of a few short years, following the pattern established in Sichuan Province in 1979. Farmers focused on cultivating the agricultural land that was split off from the old collective farms, while the new “townships”—the village administrations that emerged from the old communes—became something akin to business incubators, spinning off their old assets into new public-private companies. These were the Town and Village Enterprises (TVEs) that produced everything from bicycles to bathtubs, giving an enormous boost to prosperity in rural communities. This enormous engine of rural job creation lifted hundreds of millions of people out of poverty, and as such it may well qualify as the biggest employment scheme in human history. Foreigners sometimes cited the TVEs as a triumph of Communist Party statism, since their property formally belonged to the townships. But it is probably more accurate to say that the local officials who controlled the companies disposed of their assets just as if they owned them; in fact, therefore, the TVEs were private in all but name.
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In any case, the dissolution of the communes paved the way for an astonishing flowering of grassroots commerce.

The Special Economic Zones took longer to have an impact. But this lay in the nature of their economic mission. The SEZs—modeled on the “Export Processing Zones” in other countries—were at first aimed entirely at production for foreign markets. (For a while in 1979–1980, they were officially referred to as “Special Export Zones.”) As overseas investors piled in, the amount of goods manufactured in the zones steadily climbed. Local governments benefited in the form of taxes and administrative fees, while local people drew attractive wages—both of which stimulated further growth. Initially, though, relatively little of the SEZ production found its way into the domestic Chinese market.

Deng and other Chinese leaders had made a point of setting up the SEZs in relatively undeveloped areas, far from the People’s Republic of China’s existing industrial centers. This was entirely intentional: the aim was to buffer possible ideological contagion stemming from the influx of foreigners. The first zones accordingly started with very little in the way of infrastructure. Shenzhen had just five miles of paved road in 1979. Its entire public transportation network at the time consisted of a dozen buses and cars for a population of some three hundred thousand. As a result, it took some time before the capacity of the zone could be ramped up. Most of the population persisted in farming or fishing for years after the zone was established.
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High fences were erected around all of the zones to ensure that dangerous ideas did not percolate through to adjacent counties.
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This gradually changed as the reform process continued. Deng—with his characteristic farsightedness—envisioned the SEZs not only as conduits for foreign investment but also as channels for the transmission of modern management techniques and new technologies. As the zones prospered and expanded, they increasingly fulfilled both roles. Hong Kong investors who set up hotels, for example, went to great pains to train their mainland staff to international standards of cleanliness and service. Local people who could afford it flocked to the restaurants, giving local entrepreneurs incentives to follow suit by embracing similar standards in their own businesses. A similar process of osmosis applied to manufacturing. Although foreign investors usually ran their own factories, they needed plenty of local staffers to keep the assembly lines running. Countless Chinese middle managers who learned their jobs on the shop floors in SEZs later went on to apply what they had learned to businesses of their own.

In the first years, the contribution made by the zones to China’s foreign exchange earnings was relatively modest—even though this was one of the stated reasons for establishing them. Foreign-owned firms were allowed to operate in the zones only as of September 1983. The overwhelming majority of Chinese had little contact
with them. The number of people who worked in the zones in the first five years was relatively insignificant, and most of the goods produced were designated for export, so ordinary Chinese had little inkling of what was going on there.
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Yet growth in Shenzhen, in particular, was fast. From 1981 to 1984, the local economy expanded by an astonishing 75 percent per year. Between 1981 and 1993, the Chinese economy grew at an annual rate of 9.6 percent; Shenzhen’s growth during the same period was an extraordinary 40 percent.
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Chinese began to use the terms
Shenzhen speed
and
Shenzhen efficiency
as benchmarks for development. Later in the decade, the government in Beijing began to speak of the Special Economic Zones as “laboratories” for economic reform, and that political signal spurred a new influx of foreign investment. Outside capital now began to flood in, much of it from Hong Kong.
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The initial capital investments in infrastructure in the zones had come from the state, but now the authorities increasingly left that to the private sector.

The zones remained controversial for many years. It was perhaps to be expected that, when the conservative backlash against economic liberalization came, it was intimately connected with the zones. Reports of corruption—the inevitable side effect of a system that “quarantined” islands of capitalism from the rest of a still Communist country—gave the opponents of reform just the ammunition they needed. One of the most famous scandals involved Hainan Island, which received special status as an open trade zone early in the 1980s. A cabal of businessmen and local officials exploited ambiguities in the regulations to import large quantities of cars and consumer goods at artificially low prices, which they then resold on the mainland at an enormous profit. (The total amount of the goods involved was valued at $1.5 billion.)
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Such cases fueled the calls for what was called “readjustment,” policies to establish the priority of planning and rein in “uncontrolled” growth.

The foes of Deng’s reforms soon even included some of his erstwhile allies. One of the most prominent opponents of economic reform was Chen Yun, the party heavyweight who had buoyed up the Deng camp at the 1978 conferences with his clarion calls for a reckoning with the Maoists. As liberalization accelerated on the economic front in the early 1980s, however, Chen’s Communist instincts asserted themselves with full force, and he found himself bucking plans to give greater freedom to the private sector, which he associated with exploitation and inequality. Chen Yun—widely admired for his rectitude and apparent incorruptibility—belonged, along with Deng, to the elite group of party elders (sometimes referred to as the “Eight Immortals”) who had suffered from Mao’s persecutions in the 1960s and 1970s. These were men who were willing to tolerate a certain degree of economic experimentation but who also worried that wide-ranging reforms would
undermine Communist Party rule itself. Opposition from such prominent quarters compelled reformers to tread carefully. When describing their aspirations, they preferred to avoid the phrase
market economy
. Their preferred euphemism was
commodity economy
.