econ 4690 prelim 2 review note

8/12/2019 Econ 4690 Prelim 2 Review Note

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ECON 4690 PRELIM 2 REVIEW NOTE

3-2-10

Unplanned Economy

- Majority of economic agents unplanned

- Commune

o All the productive resources are collectively owned and are collectively controlled

in the commune administration

o All individuals on commune received income from commune

o Rural people completely collectivied

!o mar"ets #y 1$%&

o 'hat system failed( commune of 1$)1 was completely reformed

*+treme of collectiviation was a#andoned( commune of 1$%&-1$)1dismantled

o Commune su#sumes all rural china

o Commune has three levels

Commune

,rigade

'eam

o mportant term in commune is ,A./ #asic accounting unit(

.nit deploys and compensates la#or

'eam is the ,A.

n 1$$( 'here are over % million teams

'here were on average 3 households per team

,asic accounting unit that determines income is a#out 3

households( less than 100 wor"ers

As you wor"( youre earning wor" points( it represents the

distri#ution of income amongst these 3 households

- !on-agricultural enterprises in rural china

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o More su#stantial ones run #y communes and #rigades

1% million enterprises( employing 30 million people

o 'eams also have enterprises #ut they are counted as toward agricultural activity

- 'he state provides very little su#sidies to the countryside

- 'hose who live in the countryside are second class citiens

o !o guaranteed wages

o !o welfare provisions

o !o housing

o !one of the #enefits to ur#an employees given to the those in the countryside

- Activities have appropiate level in three level system

o Commune 4evel

5ual role

*conomic and governmental organiation

o 5oes not engage directly in field agriculture

o *conomic activities focus primarily on investing and non-

agricultural activitieso n order to #uild and maintain irrigation systems and road

o Commune industries include a wide range of activities(

such as processing agricultural goods(

grain processing( edi#le oil production

o #uilding materials

o specialied industries

dairy industry( small mines

o in 1$0s/ 6ive small industries

fertilier( cement( iron and steel( machinery( andenergy 7coal or hydro8

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commune industries move upscale into producergood industries supporting local construction andinputs to local agriculture

these are sophisticated industries

'a"es over all governmental activity

o 'a+ collection( maintaining order( mar"et control(

collecting statistics( passing down government policy 7fromcounty8( overseeing local militia

o 9ould #e the e:uivalent of the township government

Activities that have su#stantial activity( such as #uilding high

school( would #e on commune level

o

,rigade 4evel

Administrative entity that lin"s the teams with the commune

Receives procurement :uotas from the #rigades and parcels there:uisitions out to the teams to do the actual production

'he teams receive some farmland construction

'hese are small projects compared to communes

'he industry is commune and #rigade industry

o ;rocessing agricultural goods( things li"e oil pressing(

repairing farm e:uipment( regional specialties( ma"ingdofu( things li"e that(

,rigades are not involved in field agriculture(

4ivestoc"

6ishing #oats

ealth stations

o 'oo small for clinics or hospital

;rimary school

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4east important level

o 'eam level

Most teams are #asic accounting units( most #asic accounting units areteams

'he team( day #y day( has agriculture and enterprises

9hen you thin" team( you thin" specifically of farming( you thin"compensating rural la#or

'he higher levels do have some directly productive activity( #ut they aremostly engaged in non-agriculture and support services

;rivate activity

4arge households in commune system

o 'here is a private sector in rural china( and it is :uite

su#stantial

o =mall plots

t was temporarily a#olished in 1$%&(

Reintroduced in 1$)1

=mall plots were ?*R@ productive

ept energy for private plots(

thought to have produced 20B of agriculture( #utonly %B of land

counted in #asic value( no value add

o reeds grown to ma"e #as"ets( #as"ets

considered agricultural production

- >ow do people get income

o 9or" points persist until end of commune

=ystem where#y( as you wor" over the course of the year( you earn wor"points( not income

9or"points were allocated #y a num#er of different methods( time rate orpiecewor" or #oth(


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n some periods( if you were an enthusiastic period of the collective( if youshowed a little attitude to the criteria( you still received the same wor"points if you showed up

=imply notations in the account #oo" in the #asic accounting unit

At end of year

,A. ta"es gross income and su#tracts e+penses( net income a#out

)%B left


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o ,ut( it was a#andoned

o Reasons/

Commune system was very inefficient

;eople put energy in private fields

!o incentive to wor" on collective fields

=uppose you wor" hard( if you earn more wor" points( it goes into

collective pool

;eople have propensity to shir" responsi#ility #ecause of a lac" of

incentives

o t is impossi#le to monitor these people

o t is impossi#le to get individuals to wor" hard

Management pro#lems

!o guarantee that those #est managers are those running collective

farms

Marginal ta+ rate on private activity is ero

Allocation pro#lems #etween collective farms

*ach commune too" care of itself

o !o trade

!o la#or mo#ility

o =ystem was wor"a#le( #ut it was grossly wasting resources( it was collapsing

under its gross inefficiencies

o ?ery little trade amongst( for e+ample( communes

Communes were largely self-contained entities

=ome lin"s to the counties a#ove them

'hey received allocations of consumer goods( of producer materials( #utvery little transfer amongst communes themselves

Communes were not allowed to invest freely(

- ;rivate sector/

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o households given private plots

o larger economy/ the Dsecond economyE

some is hidden #ecause it is illegal or discouraged

much is out in open

o more generally( the private sector produces goods and services

o ;rivate sector/

4ivestoc"

Fovernment failed to effectively collectivie livestoc"( never

wor"ed

andicraft

o Retailing

o Claims that there were significant underground factories(

.nderground factories that procured material and sold goods forhouseholds


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nteresting stories/ 4ittle red #oo"( :uotations of chairman Mao( whichhad plastic covers( were re used to produce plastic goods(

o .nli"e soviet union( there was very little in the way of professions operating

privately

- Fovernment does not want &00 million agents in china running around uncontrolled

o .nplanned( does not mean out of control(

o *ven though government does not issue orders to farmers( they have numerous

methods to control

- Controlling unplanned entities

o ,etween Communes and state plans( there is a firewall

@ou do not want to see state planned activities siphoned off for

underground activities

Agents are not entitled to planned outputs unless they receive allocationfrom system

o 9hy dont people move to cities

China( since 1$)0s( has a strict household registration system

*veryone is stuc" in a particular place

9hy dont they just say to hell with it and move to the city

o ;eople who move to the city and not registered into the city

could not legally #uy food

o Rural-ur#an migration was not a significant factor until

1$&0s

o .nplanned portion of economy

5oesnt use a flurry of commands

;rocurement :uotas

=tate has to ma"e sure collective farms are producing enough food

for the city people as well as themselves

f there is one thing you must do( you must fulfill your procurement target

'his is an important concern( this is how people from the state are

getting fed

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n addition to the threat of violence for not fulfilling procurement( statecan appoint local personnel

'eam leaders local mem#ers( may not even #e part of the party

Commune leaders and party mem#ers are one in the same

o ;ower of appointment e+tends to commune system( to

commune and #rigade levels

o 9henever county wants( it can spend inspection teams into

county level

;olicy o#jectives

;est control( for instance(

o *veryone in rural china would #e mo#ilied to carry out

o#jectives

,irth control( major campaign in 1$0s

o Another means when state sends outsiders to pursue policy

o#jectives

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o .nplanned is in no way out of government control

- nteractions #etween unplanned and planned

o Communes are not entitled to materials

o >ousehold registration prevents people from moving to city since it does notallow for grain procurement

Chna!" Economc #e$elopmen% Th&ou'h La%e (9)0"

- China sees modern economy as ,rittan( .= or =oviet .nion

o =mo"e stac" economy( #uilding heavy industry

- Rural moderniation does not move in until reform era

- ;rior to the 1$&0s( industrial policy centered around the areas that a lot of it to places that

did not

o ;rior to 1$$( most industry was located in coastal cities( =hanghai( Gapanese

Manchuria

o Conscious attempt to #uild new industry in inland areas

- =u#sistence constraint

o n china( policies have to #e chosen #ased on the fact that China is on the margin

of su#sistence

- 5ecisions

o Chinese leaders personal e+perience

4ived through poverty and humiliation during war

4ittle "nowledge of outside world

4ittle "nowledge of industrialiation( rural #orne

As a result( their decisions are colored #y these issues

*+ample / china throws people at pro#lems( without resource allocations

o =oviet ;recedent

Chinese planners attempt to adopt the soviet model and move away slowly

o Chinese decision ma"ers

'his is a small group of friends( the successful leaders of a revolution

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Fet together in smo"e-filled rooms and hash it out

Mao is the most important( #ut there is other important

policyma"ers

9hat you dont see here is a systematic policy-ma"ing apparatus

!o advisory #oards( no s"illed planners( none of this e+ists

Chinese policy ma"ing was not scientific or founded in economic

theory

9hat they had was precedence( and personal e+perience( and a

desire to fi+ Chinese history

o =e:uence of policy regimes(

;eriod #etween 1$%3 and late 1$0s has five policy regimes

Consider/

;riorities

5o regimes do more and more and do #etter and #etter

s regime open to trade and other interactions to rest of world

9hat sorts of technological preferences does this regime display

o Capital intensive of traditional technologies

o 6irst Regime/ 6irst 6ive @ear ;lan ;eriod

Reminiscent of =talin era

Attempt at a #ig push toward industrialiation

Attempt to generate highest possi#le investment( suppress

consumption su#ject to su#sistence constraint

;ump all resources into heavy industry( lots of factories that will

#elch lots of smo"e

4oo"s at e+tractive policy towards rural china

o Agriculture is viewed as a source of la#or( food for

wor"ers( source of materials

!o farm investment( it would divert from industrial investment

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'his is a #ig industrial push

'he commune of 1$%& is used as a tool for industrialiation( e+traction ofresources from countryside

Frowth strategy

;ut all resources into one sector and strengthen su#sistence

;ut everything you can dump into industrial development

9hen you thin" a#out openness( china is constrained

,ecause of orean war( Chinese imposed trade em#argo on china

o China( in 1$$( signed a treaty of friendship and trade with

soviet union

o China was more than open to trade with soviet union and#loc

o China was open to trade with free world in 1$&

4oo"ing at nature of technology china ac:uires is large-scale(

capital intensive soviet technology

o t is not primitive( it is new stuff from soviet union

n first five year plan( )$ large-scale projects

1%) projects were soviet inspired

6actory in china was copied from soviet technology

o =oviet technicians came in to oversee construction

o Chinese wor"ers got training in soviet union

Much of the technology soviet union ac:uired wasfrom .=

China is getting large scale injection of industrial development

o 9hat happens

Crac"s are emerging over the course of 1$%0s

,ig push strategy creates tensions in economy( it is an un#alanced growthstrategy

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n china( agriculture lagged( agricultural plans were toned downsuccessively

China was not performing as well with agriculture

,ottlenec"s with transport and industry

1$%)( Chinese leadership was #ecoming disillusioned with soviet strategy

Mao feels that the #alance of the Chinese economy was lost due to sovietstrategy


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Alongside those three directions of change( there was the communesystem

5ramatic change of planning system

o Reasoning of great leap forward

if we focus on capital intensive modern plants( were leaving huge amountof resources in china under-utilied

we are only focusing on )$ construction projects( what a#out all thepeople who do not have a project in the district

we got lots of people( we have lots of resources underemployed

o lets put all resources to use( and continue with large( capital intensive sector

o put local resources to use at virtually no opportunity cost

dont let the local individuals divert plans from resources

o D9al"ing on two legsE

;lanned sector

4ocal technology( small scale( mostly rural

o @ou can vastly increase industrial output #y having #oth cylinders firing

'his is technological dualism

!ew soviet technology and older mulit-hundred year technology

o 9hat happened is local resources were diverted from agriculture to small-scale

industrial projects

D,ac"yard iron and steel plantsE

Chinese leaders are encouraging these plants

9or"ers preferred wor"ing in these plants

o 9hat happens

,urst of industrial growth

Collapse of agriculture

o 6or the first and only time( the su#sistence constraint was neglected

o 'he great leap forward was a terri#le failure

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ndustry goes way down and agriculture was a disaster

5iversion of la#or to industry( another aspect of the great leap was farm-capital construction


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this points to the fact that much of the output in the countryside

was jun"

t was of such low :uality nothing could #e made

o ,ecause Mao Iedong was associated with great leap( he moves to the #ac"ground

#etween 1$)1-1$)%( as compared to earlier and later

o ,etween 1$)1-1$)%( this period was one of #alanced growth

o ndustry must #e coordinated with rest of economy( especially with #inding

su#sistence constraint

o Agriculture is #ased first( and only time( in Maoist era that agriculture gets

highest development

;eople are dying #y the millions due to lac" of food

;roduction in agriculture related industries is ramped up

China #egins to modernie agriculture( fertilier and farm machineryfactories

;eople diverted from agriculture were returned

Commune system was reformed

;eople no longer wor" for commune level( they get their money

from their team

o 5ocument has rights of teams at common level 7the )0 articles8

'here is also an industrial development note 70 articles8

Much of decentraliation

o 'hese was all a#out removing the Maoist great leap forward issues

o n terms of some of the other dimensions( this is( in some sense( the height of

Chinese economic planning and careful allocation of resources

o Concern is using resources efficiently( not throwing more la#or at chinas

pro#lems

o 'his is the pea" of chinas prestige and power in china( this is when e+pertise

counts for the most

n terms of openness( soviet union and china part ways

o China( of course( is living in legacy of investment in china

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o =oviet projects( #etween 1$)-1$)%( there is an awareness in china that soviet

union is moving on and it is #ecoming a #ac"water

o 1$)-1$)%( china opens up to western *urope( shopping e+peditions e+pected to

#uy western technology

Cut short #y cultural revolution in 1$))

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!=*R' MARC> $'>!


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3-11-10

RE*# RI+,IN TO+EE W-+T I MI++E#.

Chna!" Pe&/o&mance

- 'hree sets of data

- 9hat do they tell us

o Mar"et growth after 1$2$

o F5; growth of 3B year

o 5ecent level( compara#le to chinas past performance

o =hare of agriculture is falling( share of industry is increasing

o Frowth rate #ad predictor of future growth( #ounces all over the place

o 'his is #ecause of policy fluctuations in the regime

- 9here does aggregate output go

o n soviet accounting( there is no other claimant( it goes to consumption or

accumulation

o Accumulation as a net share of material product was very high

o Accumulation was very sta#le( on average( 2%-30B

- ;olicy to results

o 'wo largest sectors in aggregate output are agriculture and industry

&0B of total output( mostly agriculture at first( #ut slowly moved toindustry

o Comments around productivity

- Agriculture

o Almost all agriculture was conducted in the commune system

China did not move from collective farms to state-run farms

'here are some state farms( #ut minor and e+perimental at #est

'here are state institutions

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;rocurement stations

Commercial trading posts to sell goods to farmers

6ertilier distri#utors

Relationship #etween commune system and rest of economy

6irewall #etween agriculture and rest of economy( agricultural

inputs produced within the plan only flow within distri#ution

6armers are at whim of government

>owever( farmers can drag their feet and passively resist(

Reluctant( gruding o#edience to those unpopular directives that are

unavoida#le

Agriculture is not the intended investment(

Fovernment "nows there is a floor with minimum needed to invest

and produce to feed china

As a result( much of the farmers are left to fend for themselves

4oo"ing at state investment that goes to agriculture( the portion

that goes to agriculture

3B of total investment goes to support agriculture

At the pea" of the agriculture first policy( in the wa"e of the

famine( investment goes up to 10B(

Agriculture is a last-claimant( agriculture from states point of

view is chugging along

- Chinese Agricultural policy

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>ow do we #uild an input #undle

o 'a"e all of the inputs( raise each to a particular power and

add them all together

o 'hen multiply all this stuff together

o 'his is a co##-douglas production function

ey components of agricultural output/

Frain/ largest output(

o n 1$%( china produced 30) F of grain( su#sistence level

is 2%0-300F

o n 1$&( china produced 31$F( marginally ade:uate

tems that grow rapidly are minor items that dont contri#ute to#ottom line

o ;opulation growth is occurring

'hus( agriculture is not growing ade:uately to suit population

growth

6ive types of agriculture

Crops

6orestry

Animal hus#andry

6ishery

=ide-4ines

o 'hings teams and families do in off season(

o =ide lines grow in this period

o Chinese agriculture is slightly higher than in 1$%

- Agricultural development

o Raw la#or

,etween 1$% and 1$)( la#or availa#le for agriculture has more thandou#led

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4and input/ 4and in china is cultivated land( and this num#er declined

=ewn area vs cultivated area

Cultivated area is used at least once per year for farming

=ewn area is counted every time you sew a piece of land

o A farm field of 10 mu will count as 10 mu of cultivated

area( and( if there is two crops #eing grown( is counted as20 mu of sewn land(

o Multiple cropping inde+/ how many times its #eing used

per year

Multiple cropping inde+ is a whole num#er(depending on the crops used

o >ow do you increase the multiple cropping inde+

5oing so is a prime o#jective of agricultural policy

o rrigated area

'here is a large group of individuals that can #e mo#ilied to wor" onirrigation projects

4arge num#ers of people in china were often rounded up to wor" onirrigation projects

4arge #ang for #uc" to use water control( and elements

;rojects change

1$%0s( flood control( emphasis is around getting rid of e+cess

water

4ater 1$%0s( focus shifts to irrigation( lots of la#or focused on

diggining in winter months

1$%&( massive great leap campaigns( which ta"e people out of

fiends and into irrigation projects

o Freat leap was a pea" of irrigation development

>undreds of dams for % million hectares

;ro#lems with northern irrigation

=urface water in China could #ecome al"aline very :uic"ly

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Much of the la#or that was used was wastedK put towards

counterproductive projects

n the 1$)0s( efforts to irrigate north china were eventually

redirected

Movement towards su#surface water

Chinese farmers !eeded pumps

1$)0s( consorted effort to actually supply them with necessary

manufactured goods

o 6armers can #uild( #ut cant pump out without right issues

@oure not ta"ing surface water( youre recycling groundwater

o ssue of sin"ing

Multi-purpose water development projects

A#ility to mo#ilie people( farmland capital construction( to get

out there is characteristic of commune system in china

o Chemical 6ertilier

1$%(


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;ig 6ertilier

o Mao/ Any pig is a fertilier factory

o Advocated growth of pig population

o Agricultural mechaniation

!ature of de#ate/ can you mechanie #efore you reform

@ou need #ig farms in order to ma"e full use of agricultural machinery

Can you first introduce mechaniation or can you do it the other wayaround

China chose to increase farm sie and then to mechanie

1$%( mechaniation intentionally low to reflect the choices of

government to incase sie

Also an appreciation of Chinas factor endowments( lots of la#or( ma"eslittle sense to mechanie farming in china

6arm mechaniation is a pretty radical departure from farming

Appropriate mechaniation/ relieving time constraints

f machinery can speed up farm production to get crops out(

mechaniation is appropriate( relieve crucial constraints

o *+periment station

dentified #est crops in the area and made them widely availa#le

Also made #etter varieties availa#le to farmers

China is two years ahead of international efforts( compara#le

:uality to R&( shorter growing season and higher yields per acre

o ;lant protection

;esticides and her#icides

n china( during most of the collective era( there were very few

pesticides and her#icides(

>ow do remove the #ugs from plants @ou round up all the

people and pic" the #ugs off the plants

China was a#le to effect a solution #y mo#iliing la#or

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o Freen Revolution pac"age

mprove varieties

9ater control

6ertiliers

- ,ottom 4ine

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3-1)-10

*'&cul%u&e and Indu"%&y

- Movement from and agricultureK 4ight ndustry to >eavy ndustry

o 6ocusing development on desired #ranches

- *+treme volatility

o Chinas growth rate #ounces :uite a #it

o 'he volatility in industry is :uite e+treme

o ow does this movement to heavy industry occur

o Capital accumulation

@ou have to move capital to the targeted sectors

;lanned economy is perfect for this

Chinese planners were a#le to divert resources to producer goods

from consumer goods

4oo" at steel industry vs te+tile industry( steel grew significantly(

te+tile grew sluggishly( #ecause of the governments emphasis onproducer goods

o 'echnological "nowledge

@ou need to "now how to #uild these massive plants

@ou can produce it yourself or you can #orrow it

China( in fact( was a heavy importer of technology

Ac:uisition of "nowledge "ey ingredient in chinas growth story

- 'echnology and its contri#ution to heavy industry

o 5istinguish five slices of industrial sector

=oviet Ac:uisition

>i-'ech =ector

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At that time( it is not involved in '( #ut military hardware( nuclear

power development( an area where the Chinese state throws smartand educated people in

;lanned economies( in general( are not technologically #ac"ward(

after all( =oviets got to space first

>owever( they cannot do it across the #oard( they have no means

of diffusing technological "nowledge across economy

o A few sophisticated industries and a the rest technological

#ac"waters

ndigenous metropolitan enterprises

Concentrated

Rural ndustry

,ac"yard segment

!o assistance from planned economy

solated from region to region

solated form technological progress

o Chief recipient is the soviet industry

=oviet cooperation with china predates the peoples repu#lic

As parts of China came under communism( competition for northernindustrial areas in china

,iggest event furthering cooperation was Mao Iedongs trip to =oviet.nion

Mao wor"ing out specific mechanics of economic and political ties

=oviet and Chinese agreements

'reaty of 6riendship

Mutual assistance over 30 yrs

=oviet Credits( 300 million

o China would pay #ac" with raw materials and producer

goods that would #e #uilt in factories designed to sovietspecifications

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Agreements for military and nuclear cooperation

China and .==R are fast friends going into 1$%0s

China is still a poor( and undeveloped country

o 'he agreements provide for the =oviet .nion provide for large-scale industrialfacilities in china

=oviet agrees to #uild 1%) large factories

=oviets agree to train 3&(000 Chinese wor"ers( they wor" in the sovietfactories in preparation for the Chinese factories openings

Materials and machines came from soviets

f you total all this up( the 1%) factories that the soviets sponsored totaledto a#out half Chinese investment in industry

Chinese claim( in retrospect( the loan was worth a#out %3 #illion @uan( in1$%

o 5uring this period( china is largely isolated from the western economies

=u#se:uent developments are from soviet technologies and industrialdevelopment( and Chinese incremental improvements

'echnology comes overwhelmingly from soviet union

o =u#se:uent development comes from diffusing technology thats ac:uired

ndustrial development is driven #y factories china #uilt

o Chinese and =oviets part ways in late 1$%0s

=u#se:uent development comes from diffusing technology

Comes from planning system

o f you have an operating steel mill( you can plan on

copying it

o f a soviet plant is operating at capacity( you can replicate it

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o >ow do you get technology from large-scale factories to small scale ones

'here was a systematic diffusion(

Chinese planners were aware they are a #ac"ward country

.nderstand that their injection of technology was a one-time event

'wo-9ay visits

'echnicians from smaller plants would wor" at larger plants for a

year

'echnicians from large soviet plants would #e sent to rural plants

to help them modernie

4arge systematic interaction across these tiers of hierarchy

4arge plant may have correspondent( little #rother out in the

countryside to which it sends cast-off machinery

o 'he idea here is that the wal"ing on two legs strategy was a good idea that too" a

#ad turn during the great leap forward

5uring the late )0s and early 0s( wal"ing on two legs resuscitated

o After great leap forward( now understood that #ac"yard industry is useless N

All output was poor :uality

o 6ive small industries developed through china

>ydro-electric power

6armers can do everything e+cept #uild a generator

Fenerator suita#le for hydro-electric plants

6or "ey pieces of e:uipment for fertilier factories

,y 1$&( there were a#out )000 enterprises in small industries(

received allocations from state planned sector

o A hydro-electric generator was a legitimate commerce

transaction

o ;lan called for selling of these generators to rural

communes

'hese enterprises were locally #uilt and operated

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'his could not have happened without a su#stantial diffusion of

technology

>ydro power is not a traditional industry

Chemical fertiliers not a traditional industry

o f you loo" across the five small industry

6ertiliers/ =mall plants producing majority of fertilier

Cement/ majority produced #y small factories

o 9al"ing on two legs is succeeding the second time around( after disastrous

attempt #y great leap forward

- ,y and large( Chinese dont have ready access to modern technology

o Assessing whether if Chinese have done a good jo#( need to loo" at constraint

China has done a good jo# with their constraint( diffused technology andmade large incremental improvements( wal"ing on two legs strategy

o 'ypically( you would see a large jump in productivity with technological

"nowledge

o f you loo" at calculations of productivity growth in Chinese industry( this has

grown at very low rate

o f you invest li"e cray over 30 years( every wor"er gets more capital to wor"

with

Capital deepening

,ut when you ta"e the capital into the denominator of productivity perwor"ers( that growth goes away

o >owever( the productivity of the Chinese industrial economy does not grow much

at all

'his is a pro#lem(

'here is something that is leading to massive inefficiencies in Chineseeconomy

- Motor ?ehicle industry

o =u#stantial economies of scale

o 'o produce cars( light vehicles( you need a factory that produces 100(000 year

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o 'o produce truc"s( you need a factory that produces 30-0" per year

Anything lower( there will #e higher costs per unit

o =u#stantial economies associated with agglomeration

6actories cluster together

Rationale/ factories cluster #ecause they need parts from one another( theyshare parts from input supplier

Cuts costs of coordination from many factories

o China does not have a motor vehicle assem#ly plant


32/50

o Chinese are getting 99 era 6ord truc"s

o second five-year plan

development of num#er 1 motor vehicle plan( and development of num#er2 motor vehicle plant( #ut never implemented

great leap forward disrupts issue

at num#er 1

attempt to #uild more vehicles e+ceeding specifications of plants

local ur#an municipalities attempt to #uild local motor vehicle plants

shanghai #uilds 1%" motor vehicles in 1$)0s

!anjing gets some small-scale soviet assistance

'hey are not producing hundreds of thousands( #ut are developing

,ac"yard( Freat leap industries

,y end of great leap( *very province( e+cept 'i#et( is producing

motor vehicles

'his is completely unsuccessful in that #ac"yard industries could

not sustain production( they are scavenging

o 'hey are putting together something that it can run under

its own power( and report it as a vehicle

=trictly ma"e due( limited technological capa#ility( virtually no

prospects

'his is negative output( #ecause people are #eing ta"en out of farm

fields and stuc" in these terri#le industries

Freat leap industry was cho"ed off #y shortages of materials

;ea" output in motor vehicle industry was a#out 23" vehicles

5esign capacity of one factory was a#out 30(000

ndustry collapsed su#se:uently

o 4ate 1$%0s( down to 3(%00 vehicles

Freat leap forward cost China ) years of motor vehicle production atnum#er 1 motor vehicle

32


33/50

.r#an municipalities did very well

=hanghai has parts and materials suppliers that provide to motor

vehicle plant

,y 1$)&( china is $&B self sufficient in inputs to motor vehicle

production

1$)%-1$))( output is a#out %0" cars

o China( in 1$)%( was planning on #uilding two plants


34/50

,y 1$0s and 1$&0s( 'echnology in Maoist motor vehicle industry werestill what would see in 99

1$%( china #egins a massive wave of technology ac:uisition

- Chinas plants were unusual

o =mall scale plants not agglomerated

3-1&-10

Chna!" Indu"%&al &o1%h

- After Chinas initial ac:uisition of goods( much of chinas planning goes to diffusingsoviet technology

o Many means to diffuse technology

;lans for Replicas of factories

=oviet technology is replicated in new plant

o nstances of moving plant to new location

;lan to relocate industry towards interior

o ;lanning system important device to implement new technology

o Fuidance

Centrally controlled Ministries also provide technical assistance toprovincial run industry

- Many training programs

o nstitutes for motor vehicle and training process

o 5ispatch of e+perts to small factories( may #e there for years installing e:uipment

o >oriontal cooperation of #igger and smaller factories(

smaller factories will get cast-off machinery

small factory may #e a great leap for technological capa#ilities

o infrastructure creation

hydro-electric generators put into place through state sales

ey e+ample( again( is five small industries

- Massive technology transfer to ongoing diffusion for twenty odd years

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- ;ro#lems/

o njection of new technology comes to a sudden halt in the late 1$%0s( soviet union

and Chinese diverge around great leap

o 1$0s( china is lagging compared to rest of world

China stuc" in 1$%0s

.se of planning system for motor vehicle capacity

Motor vehicle/ a characteristic structure

4arge cities with independent industrial capacity

=mallKtiny plants that produce a few hundred vehicles per year

scattered all over china

!umerous small plants all over china( rest is spread overmediumKsmall plants

Frossly inefficient( many modern industries( including motor

vehicles( have economies of scale

o 4oo"ing at other industries( fragmented

O$e&all Economc #e$elopmen% n Chna The -ou"ehold Pe&"pec%$e

- Regional #alance

o ?ast #ul" of china doesnt really have any modern industryKtransport

o Much of the regional im#alance were placed in undeveloped areas

o ;lan is used to address regional im#alances

o 'here allocations in central plans of payments to poor areas

Rich areas have some of their production siphoned off( they can produce alot and then invest and consume less than what they output

;oor areas( production less than consumption and investment

@ou can do this in the planning system

o 5irect controls that limit disparities #etween wor"ers

All wor"ers are on national pay scale

9or"ers in Puhou ma"e the same in =hanghai

3%


36/50

Regional differences in state pay are ?*R@ small

o 'his is not at all surprising

'hese were used to address regional im#alance

'his planning system changes the #ul" of agriculture

o ;oor areas/

Five them low procurement targets at high procurement prices

Five them goods at low prices

.se commercial instruments

- 5onathornK4ardy Argument

o ssues in central redistri#ution

>ow centralied was Chinas government in Maoist ;eriod

>ow cellular was the Chinese government

Chinese government was a series of localied economies that were

not well connected to each other

o 4ardy/ there are lots of redistu#ition instruments( and the government used it

e+tensively( there are no loose pieces that didnt wor"

o 5onathorn/ *conomy was very fragmented( Cellular

o Reallocation of resources

9as it enough to discuss the regional disparities

5id the poor areas improve during the Maoist era

o Argument is outdated( #ut shed light on the economy

o 5ung =hao ;ing/ views are congruent with 5onathorns

n 1$%( he feels regions do what they want and do nothing in the centralplan

o >owever( a large amount of goods are centrally controlled( steel

4ardy has a point( government should #e a#le to regulate( to some e+tent

o 'here is new data concerning the pattern of regional disparities

3)


37/50

Fuanghou grew rapidly during this time

Fueeghou vs Gialing

F per Capita( in 1$%$( 33 @uan( compared to G4 with 1& yen

F in 1$&0( 10( G4( 00

o Fap widening

o !eed to see if the gap is closing( its widening( from 1%0 to

%00

f youre starting at nothing( you can generate such growth

o F discrepencies have not gone down at all( places li"e F are not growing at

higher growth rates

o ,ottom graph reflects relative differences( is gap #etween rich and poor closing

o Fovernment distri#ution

;oor places get to "eep up to 1%0B of whatever revenue it raises( onaverage 10B more

Rich places( li"e ,eijing( gets to "eep 3)B of revenue

'a+ing rich places and su#sidiing poor( #ut still not a#le to close gaps(central redistri#ution effort not enough

- ncome distri#ution

o Ag vs non ag population

o n rural china( 1$% Q households has watch( 1K% has radio( 1K% has sewing

machine( 1K3 have #icycles

n 1$&1( less than 1 in 100 households have '?s

o 9e are not tal"ing a#out consumer goods( we are tal"ing a#out food

o 9hat happened to food consumption

1$$( food consumption marginally a#ove where it was

o 0B increase in consumption( official num#ers

Fiven hard data( that is an upper #ound

o ncome distri#ution of gradually increasing pie

3


38/50

ncreasing at a rapid rate

- 1$&( there were many surveys

o Astounding poverty(

o Continuous poverty in entire county( less than %0 @uan collectively for threeyears

magine all of 'omp"ins County in continuous poverty

o


39/50

?ery une:ual( Malaysia( ;hilippines( god awful is greater than %

,est youll see is in the 2 range

o 9here is the ine:uality coming from

t is not coming from the ur#an population( which is 01)

'he rural population is not a#ove chinas overall coefficient

'he pro#lem comes from the #ig ur#an-rural gap


40/50

still much worse than the socialist countries in terms of ur#an population( distri#ution is e:ual amongst rural and ur#an

individuals however( the gap #etween ur#an and rural is su#stantial there are huge num#ers of rural Chinese living in chronic poverty

chronic poverty is dire poverty( these are people who are #arely staying alive andare stuc" in the situation there are 220 counties where the entire population

literacy( educational attainment in terms of material product delivered to population( performance is not good if you loo" at china compared to other very poor countries( people in china have

#etter healthcare and education compared to other individuals china e+cels in delivering social consumption goods

Economc Re/o&m n Chna

Reform period #eginning in late 1$& this is a #ottomless pit( the amount of material regarding the era

in the period from 1$)-1$&( there are numerous events that create a window of opportunityfor change in the economy =e:uence of death

1$)( Mao Iedong dies other leaders are free to discuss changes Maos closest followers are eliminated Chinese central leadership #egins to collect hard information a#out Chinese economy 'hey have an opportunity to move #eyond the Maoist constraints to gather information a#out economy( the Chinese leadership gathered numerous

surveys poverty in provinces( they were startled #y results( they did not e+pect these

poc"ets of poverty amongst even rich provinces inventory( there was more than a years output of steel rusting in the #ac" yard( not

#eing reported to central #ureau numerous little factories that ,eijing does not "now a#out( local planners not

telling ,eijing a#out little output leaders are finding out that economy is much different than they thought china is #eginning to deepen its contacts with the world

more tourists to china great leap outward/

#uying missions loo"ing for western technology #eginning to #e much more familiar with the state of the technology in the

world( and were startled #y how #ac"ward they were 1$&( important meeting at the end of the year

this meeting was the ultimate rejection of the Chinese 5evelopment Model Chinese development model

regional #alance suppressing income differentials

0


41/50

self-reliance to avoid international em#arrassment regional self-reliance

technology catch-up aversion to mar"ets

models of reform

when Chinese leadership thin"s of where they are and where they are going( producea se:uence of models for economic development after 1$&( DChinese are not #lind man wading in river( loo"ing for the ne+t stoneE

we will loo" at model and how it is implemented Models/

,ird in a Cage 1$&-1$&

!ew *conomic Model 1$&%-1$&$( superseded #ird in a cage

=ocialist Mar"et *conomy 1$$3-present

superseded new economic model never #een superseded( #ut amended

,ird in the Cage !ame derived from a statement from one of the top Chinese leaders( chen @uan( that

Chinese economic planning #ird is state economic enterprises( and around the #ird( there is a cage( Chinese

economic planning system if you put a cage too close to the #ird( the #ird will get sic"ly( if you ma"e it too large(

cannot control the #ird( you need to #uild the right "ind of change chen @uan does not want to get rid of the cage( he wants to only twea" the cage to ma"e

it the Dright sieE >e does not want to fundamentally change the planning system( he wants to slightly

amend it n order to figure out what we need to do( we need to figure out what we can ta"e out of

the plan Chen @uan decided to get rid of the commune system( let the farmers #e free

6or every state enterprise( there are e+cruciating amounts of paperwor" and noincentives for wor"ers or productive factory managers

lets give enterprise managers more latitude to #etter than allotted lets not get rid of planning( lets not allow the planning system to #e so tight that it

s:uelches any sort of efficient #ehavior as this played out on the ground( the major reforms outside of the plan

there were a num#er of reforms( within the plan enterprise managers were a#le to mar"et the additional output outside of the planned

level( and they can #enefit from that profit there is a strong incentive for the #ird in the cage( for the #ird to #ehave in efficient

ways( produce more( economie( improvise( and produce #eyond allocated levels

this is not a#ove and #eyond the levels( a state enterprise can act a#ove and #eyond

1


42/50

regular levels there is no word where the economy is going until 1$&

6irst attempt/ 'his is where we want to #e in five years( and this is how we get there Chinese central committee is rejecting feeling from the stones focus more carefully on what is prescri#ed in the 1$& plan

new economic model introduced in 1$& china remains a socialist planned economy( #ut the planning system( has to remain

fundamentally reformed #ut it has to #e a su#stantial o#jection of reforming

according to top leadership of communist party( planning system had fundamentaldefects the major defects

the old system has no distinction #etween function of government andenterprise( the #ureaucracy does not differentiate #etween the producer and theplanner( enterprises should have a certain function( government should have a certain

function( and they should #e identified pro#lem with the difference #etween regions and #ranches in economy state in old system e+ercises rigid control

the cage is too tight and we are stifling any vitality no importance is given to commodity production( the law of value( and

regulatory role in the new mar"et within an enterprise or within a farm( there is successful egalitarianism

there were evidence of defects from 1$%0s to 1$&( enterprise managers were not a#le to effeivitely manage enterprises and

farmers were una#le to farm Chinese economy has its economic vitality stifled

creativity and innovation gone more fundamental reform was needed

china needed to readjust economic policies and open itself to outside world 1$&( Central committee document

outlined what reform should loo" li"e small documents from small committees that outline how the economy should #e

reformed 1$&/ n new economic model

ey element/ en%e&p&"e au%onomy design of new system precedes from notion much of the decision vested in planners is diverted from innovation

autonomy over investment related decisions and pricing over outputs enterprise manager has a voice in decisions that were once dictated

this autonomy is intentional prior to this( the managers got a whole level of directives that was inadvertently

given to mangers( there was some wiggle room now the autonomy is everywhere telling enterprise managers that they have the a#ility to ma"e decisions does not

mean they will do it

2


43/50

'a+ for profit enterprise now pays ta+es( instead of simply having calculated profit under new plan( ta+payer gets enterprise profit he pays ta+es and "eeps the after-ta+ profit( what can he do with the refrained

profit

if he can get the wor"ers to wor" harder( everyone is #etter off #onus and #etter living provisions for wor"ers #onus and notice from higher-ups for enterprise managers thus( enterprise manager has incentive to wor" harder( and has the opportunity

in this system( there are mar"ets for virtually everything in sight the enterprise manager can #uy and sell products( they can hire la#or( they can

#uy technology these mar"ets e+ist alongside the plan

>ow are the planners going to control the economy with all this autonomy udance plannn'

Mandatory planning/ 20-30B of industrial sector( that is old soviet type

planning shrin"s to covering almost all industry to only a :uarter of industry

free-mar"et planning( 20-30B 6ormerly trivial

9hats in the middle Roughly %0B of industrial out is DFuidanceE this means that planners do not issue commands( they operate on profita#ility you have autonomyKaccess to mar"ets( go out there and raise mar"ets

constantly manipulating terms of credit implementing the economy #y command( they are encouraging the enterprise

managers to go out and profit and do well for themselves 9hy does the government even have a mandatory command style economic sector

f guidance fails and that the economy goes off the path( there is a mandatory hardminimum set #y the mandatory planning if the guidance wor"s well( the mandatory minimum is irreverent if the plan is lousy( he will hit the mandatory limit the minimum for mandatory

planning whats the difference #etween mandatory and guidance plans

different factories didnt have different plans( an enterprise would #e under allthree regulations enterprise would #e #ound to small mandatory plan( guided for the rest( and

have the opportunity to enter the free mar"et fundamental reform weather or not you can run an economy on this #asis

would it #e possi#le to dispense this types of enterprise commands( #ut theChinese said they were going to try with this planning elsewhere

theres still going to #e a plan theres still going to #e a plan from a-# afterwards( then you told every enterprise

what to do those #ecame the commands afterward

new role of planners you have to transfer the :uantities produced to a price( planners are re:uired to

3


44/50

generate prices( ta+es( terms of credit for levels produced there is a reform of the planning #ureaucracy regions and ministries have planning power of their own( they will su#vert

guidance planning if guidance planning is to wor"( you cannot let intermediate #ureaucrats su#vert

guidance with the new economic model comes new planning #eauracracy

state planning commission still has provincial planning commissions which haveall enterprises under it

ministries #ecome advisory to the central planning commissions the provincial planning #ureaus that previously has factories under it #ecame an

advisor to the provincial planning commission there are numerous changes associated with the new economic model

numerous details written into new legislation going sector-#y-sector

models of what is happening on the ground

!ew economic model did not wor" ;lanners proved very :uic"ly that they were incapa#le of providing the right guidance loss of macro-control( inflation was rampant( real income in ur#an income decreased #y 1$&-1$&&( the new economic model was dead( entrenchment from 1$&$-1$$2 was

put on hold Chinese leadership formulated new attempt at an economic model

"ocal"% ma&e% economy

the mar"et is to play the fundamental rule in resource allocation under the macro control ofthe statement the pu#lically owned sector is the mainstay of the economy

dramatic change from previous stage previously( china has planned economy 1$$3( central leadership says its moving away from economy state moves away from micro-management

state will #e controlled with macro-economic control( however( the pu#lic sectorremains the mainstay of the economy

there is no plans to a#andon the state sector China is( today( #y and large( a mar"et economy

5etails for socialist mar"et economy-1-10

+econd E5am /o& Cla"" Wee &om Thu&"day.

Chna3" Economy c&ca (9)7


45/50

planning( tin"er with the sie of the cage( constrains individuals agents and to tin"er thecage itself

soviet type planning stays #ird in the cage/ li#eraliation of the planned sector

tin"ering with state enterprises/ a#le to produce and mar"et a#ove plan

if a state enterprise produces a#ove plan( the enterprise could mar"et theremaining 10B and "eep the profit !ew *conomic Model

the planned commodity economy soviet type planning

allocation mechanisms/ 20-30B mandatory plans( what it must produce( old style soviet type planning 20-30B spontaneous regulation/ 6ree mar"ets

Chinese leadership hesitant to call the new program free mar"et %0B guidance planning

you have a#ility to e+ercise autonomy( and you will have incentive( #ecause

you can #enefit from profit-ma"ing enterprise managers are told to go out and ma"e a profit there is a plan( #ut it is implemented under the guiding portion of the plan

parametrically Manager manipulates various tools that impinge profita#ility

;lanner manipulates parameters( and hopes that the enterprise managersuccessfully accomplishes the goals

;lanners still have to implement the plan and its :uantities( how many:uantities of railroad trac"s( etc planners need to translate the commands into prices and terms of credit

this plan was announced in the mid 1$&0s( was to #e implemented #y end of late1$&0s

plan did not wor" and it was a#andoned #y 1$&$ new economic model failed

inflation grew rapidly( output stum#led( mi+ was not desired goods socialist mar"et economy

1$$3( China is going from( plan to mar"et new economic model of the 1$&0s( was still a planned economic economy 1$$3( the Chinese government ends planning role of the state will #e dramatically different( no more micromanagement

state will withdraw from issuing commands( and step #ac" to traditionalinstruments of macroeconomic policy

china will continue with socialist economy( China will include pu#lic ownership(which could #e stretched to include pu#lically owned corporations

almost all prices will #e decontrolled almost all control of enterprise will #e ended mar"etiation will #e encouraged across the #oard

mar"etiation/ changes from grain procurement system to mar"et system( land system/ land law of 1$$&( farmers get land on 30 year leases( and get it for

the rest of their farming lives( there is a mar"et in land( a mar"et in everything(

%


46/50

mar"etiation is actively encouraged so is entry/ non-state sector has e+ploded

very permissive stance toward entry for non-state firms( not many fields thatare reserved for state

entry of new firms/

many state firms were privatied or corporatied some of these firms have no state ownership at all once reform ta"es place

tradition of state-owned enterprises( when state is sole owner( is no more very few enterprises that still have ownership

government will have minimal impact on enterprises very few enterprises that have state ownership

level playing field this has #een often repeated differential treatment #ased on ownership has #een repealed

#ased on domesticKforeign ownership of company( state vs private mar"et economy will treat every entity the same #ased on the mar"et

social welfare provisions previously( Chinese enterprise was social city in of itself( had to provide(

healthcare( daycare( etc socialist mar"et economy/ getting rid of the socialist functions of enterprise and

giving it to government ta+ collection

ta+ collection was formerly something ta"en care of on a national scale now there is a DfederalE ta+ system

each ta+ing jurisdiction has its own area( Chinese now has its own internalrevenue service

,asic prescription remains to present/ transition from planned economy to mar"eteconomy with large element of non-state ownership

Pha"e" o/ Economc Re/o&m The Ru&al Pe&"pec%$e

;re-1$& vast majority of the rural economy falls into the unplanned jurisdiction( state only tells

farmers how much they need to procure farms are collective( farms team is the collectives #asic accounting unit

farms are allocated small private plots( which they "eep for themselves very difficult for one commune to interact with another( communes could not pool or

allocate resources the communes are cellular in nature

;ost 5ecem#er 1$& "ey changes are outside the plan of rural communes

)


47/50

#eginning in 5ecem#er 1$&( central committee reissues #ill of rights from 1$)1 ma"es sym#olic statement that team has rights ma"es another important measure/ to increase procurement prices

information is coming in a#out the discrepancies across china( and so the governmentdecides to #uy at significantly higher prices

farmers are getting 20B more for the grain than previously %0B #onus for those who go a#ove :uota

other prices are also increased( and much more grain was purchased a#ove :uotathan previously

Chinese government is getting serious a#out the procurement 1$$-1$&0/ reform #egins to heat up

reforms are unofficial( and( technically illegal( until =eptem#er 1$&0 various regions in china see the writing on the wall and get rid of collective farming(

parcels of land are doled out to family farms the government still owns land #ut run #y family households

this unofficial reform wor"s very well

central leadership( in 1$&0( approved Dresponsi#ility systemsE responsi#ility systems is contracting #etween the collective and groups of

households on the other essentially( they devolved decision ma"ing from collective to small farmers also provided for diffential compensation( it is lin"ed to performance

household responsi#ility system is contracted to household there is no unified distri#ution

#asic accounting unit of collective is gone the party that contracts with the collective is the individual household the household has o#ligations to collective( and 100B retention rate a#ove the

collective the collective is thus ta"en out of farming( the collective #ecomes a landlord and

the individual households #ecome family farmers this change has very little effect on the planned economy

note/ the mandatory procurement system continues 4and Contract #etween collective and households

section 1/ given from team to mem#ers #rigade and team still e+ist in theory section 1 tal"s a#out land and its e+pected output

of this land/ certain amount is contracted #ased on populationKla#or force land was divided up on a per-capita #asis

half of land was divided #y headcount( other half was divided #y la#orforce( add that together for household( and thats the total allocation

amount of land given to household will not #e changed for a certain num#er ofyears

e+plains the o#ligation of household to team will #e counted the individual household farmer has the right to choose the individual crop

rotations scheme appropriate to the holdings farmer is not the decision ma"er

farmers decide what to plant and how to rotate crops


48/50

imposes tight constraints on what you can do with the land you cannot contractKsell land( you cannot decide that you are not going to

#uild on it( it is constrained to agricultural uses section 2/ production responsi#ilities

many areas crossed this out( and moved to section

re:uired farmers to grow specific :uota of certain crop( eg rice section 3/ delivery responsi#ilities

first/ delivery to state second/ delivery to collective

can #e relieved of de#t if there is an act of god can #e put into de#t to the collective for those who failed to produce :uota

paragraph , refers to :uota/ team would #e told that it has a total :uota( #ut it can also sell a#ove :uota(

which got a premium price what teams would fre:uently do is that they would divide up the :uotas

amongst households

section / shows where delivery will go state ta"es where procurement :uota will go and its agricultural tas"s if team has capital accumulation fund( e+penses of team must #e accounted #y

households household must pay for land( and will "now where payments will go once they

pay for teams =ection %/ mandatory la#or

pro#lem the team now faces team once deployed la#or( #ut it does not control la#or now contract re:uires a#out two wee"s a year to maintain pu#lic wor" projects

section )/ provision for those team mem#ers who were in de#t when responsi#ility

system too" over de#ts do not go away once responsi#ility system arises

wor" out with a team a repayment plan once the system is implemented section &

#oilerplate/ discusses collective assets and payments for inputs( eg( electricity typical term of a contract would #e three years

crude provisions for dispute resolution 'his is tenant farming/ household is team( its tenant farming with fi+ed o#ligations(

#ased on shares you pay fi+ed o#ligations( in a good year( your income will #e high( you get to "eep

everything a#ove :uota #ut in a #ad year( 100B of ris" is on farmer( if you have nothing a#ove delivery

o#ligation( youre screwed( theres nothing in the provision 100B of #enefit and ris" falls on household

commune( team( procurement systems are all still there this is simply a tin"ering of the commune and its mem#ers

the contract is fairly detailed delivery o#ligations written in to contract that may #e different from those neigh#ors

&


49/50

there is also a lot of latitude as to what can #e written into contracts incentives are very high-powered

previously( with collective( wor"ers could shir" responsi#ilities now( there is no free-riding( your effort is rewarded

there is a very strong incentive to wor"

opportunities to sell output a#ove :uota level state during this time( is providing for state :uota opportunities for very good incomes( and retention

greatest deficiency in contract/ three year horion at the end of three years( you dont "now if land will #e redistri#uted in year three( you may mine land for all its worth( you have no incentive to invest in

it numerous ways to lose land/

village decides to redistu#ute it perhaps land was distur#ed #ased on traditional little fields( #ut the village

could consolidate #igger fields

village often recognies that the land allocation is not similar to that of thepopulation there is a good pro#a#ility that you will not have the same land after three years there is no rentingKsu#letting around

the #est farmer in the village gets the same as the worst farmer in the village(and there is no opportunity to reallocate in side deal

why would you not allow farmers to reallocate !o reason 9ithout reallocation( there was an nherent inefficiency in the system

no fine-tuning of distri#ution many of changes came in 1$&3-1$&

improvements of initial system does not change the essence of household responsi#ility

government decides that farm la#or can #e hired as of 1$&3( private investment in virtually all forms of capital e:uipment are

allowed in rural china you can #uy a motor vehicleKtractor( should you #e a#le to afford it

free-mar"eting of surpluses as of 1$&3 is legitimate( this is a#ove delivery :uota as of 1$&3( goods su#ject to :uota can #e freely traded a#ove :uota

you can cross goods a#ove regional #oundaries land can #e rented as of 1$& other changes in 1$&

houses can reclaim unused land no e+piration date in contract( household reclaims wasteland through farmland

capital construction peasants are reaffirmed for mar"et system as of 1$&( farmers can #e shareholders in enterprise 1$&/ there is a rejection of self-sufficiency( there is a reduction of specialiation

of farmers who :ualify #y these definitions( it is a mar"et that specialies activity there is incentive to specialie(

#y the end of 1$&/ household responsi#ility system is nearly 100B of farmers

$


50/50

ta"es four years to dismantle collectives commune system is a#andoned once household responsi#ility ta"es hold and is the wave

of the future 1$&/ there are a few communes( all the rest are gone

econ 4690 prelim 2 review note

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