ECONOMICS IN THE MAO PERIOD

ECONOMICS IN THE MAO PERIOD

20080314-Haihe-poster-15 Nolls.jpg The Communists created a drab world of ration cards, uniforms, Big Brother watchfulness with suspicion directed at anyone who tried to improve himself. Under Maoist forced egalitarianism everybody was poor except the political elite and people were supposed to find fulfillment in spiritual matters and comradeship not material things.

In the Mao era, people generally worked in factories if they lived in cities and worked on state farms if they lived in rural areas. They didn’t make much money but they didn’t need to. Most of their needs were taken care of by the state and there wasn’t much to buy anyway. The Chinese word for Communism, gongchan zhuyi, literally means “theology of sharing property.”

Under Mao, one pundit wrote, the economy was simple. The government controlled everything and ran it into the ground. When writer and Atlantic Monthly editor James Fallows visited China in the 1980s, he said, “In one unheated, acres-wide factory in Hangzhou, we saw some 5,000 women attending old-fashioned looms to make hangings and tapestries of traditional Chinese scenes with no indication that anyone ever bought them.” Many of Mao's grandiose economic schemes were grand failures. See Great Leap Forward, History

In the Mao era, he economy emphasized heavy industry. Success was measured in how many tons of steel produced and barrels of oil pumped from the ground and how well targets and quotas set in five-year plans were met. The first Five Year Plan was in 1953. Over 100 new industries were started, with a strong emphases on heavy industries and the production of things like steel, tractors, mining equipment and generators. China’s 11th Five Year Plan was approved in October 2005 and began t take effect in 2006.

In the 1960s every factory and industrial complex was introduced with same speech: "Before liberation there was a poorly equipped factory run by capitalist exploiters. Then the Japanese and Chiang Kai-shek. came, bringing production to a standstill. Weeds grew around it. But after the liberation, the workers gained a new spirit, knowing they were no longer the slave of the capitalist. Now thanks to the Party and Five Year Plans production has increased by a phenomenal rate." [Source: Jørgen Bisch, National Geographic, November 1964]

See Industry

Economic Daily Life in the Mao Period

School and health care were basic but free. Housing was heavily subsidized. No one had a car. People huddles in quilted coats in the winter, waiting in long lines for buses. A bicycle was beyond the means of most people. To get one required half a year’s salaries and six months worth or ration coupons.

There was little bargaining and no tipping. There were few shops, restaurants, vendors and markets. The only clothes that were available were dark blue and grey Mao suits. People needed ration coupons tp buy meat, rice milk powder and cooking oil and waiting for hours in lines to get their monthly allotments.

In the Mao era formal exchanges of everything from goods and services to information was expected to go through official channels, under the supervision of bureaucrats. Administrative channels, however, were widely acknowledged to be inadequate and subject to inordinate delays. People responded by using and developing informal mechanisms of exchange and coordination. The most general term for such informal relations is guanxi (personal connections). Such ties are the affair of individuals rather than institutions and depend on the mutually beneficial exchange of favors, services, introductions, and so on. In China such ties are created or cultivated through invitations to meals and presentation of gifts. [Source: Library of Congress]

In the 1960s, a family living in a modest apartment in Shanghai are meat about once a week. In the 1970s, sugar and cooking oil were rationed. Food coupons could only be used in local markets to buy rice and vegetables. Friendship stores were the only places foreign goods could be bought. They were famous for their sullen, slow service and accepted only foreign exchange certificates.

One Chinese factory worker told the Washington Post, "In old China, before reforms, we all had this secure life. Nobody made any money but nobody felt any stress, unless you did political things. Now from morning till night, I have this sense of an impending crisis."

See Savings

See Job Searching Customs

Business in the Mao Era

20080314-cr osu.jpg
Fate of accused capitalist
in the Cultural Revolution
Repeating a pattern established by the Chinese emperors that preceded him, Mao withdrew China from the international marketplace. He created a state economy which controlled and owned everything from flower shops, to pig farms to steel mills. Factories were generally given certain amounts of raw materials and told how products they were supposed to produce.

The popular Communist play The March of the Foolish Man was based on a true life story of a poor peasant who turned a small business selling watermelon seeds into a big enterprise worth millions. Later he mistreated his workers and was taxed heavily by the government. The story ends with the man renouncing his millions and returning to his life as a peasant. [Source: "Riding the Iron Rooster" by Paul Theroux]

In the old days foreign investors who came to China mainly did business at the Canton Trade fair---a gathering which today accounts for 20 percent of the deals made for China's exports. Before they were allowed to make deals they had to sit through lectures on Maoist thought

Private businesses were illegal and entrepreneurs were regarded as criminals. State-owned enterprises grew into big bloated giants that employed lots of people but gobbled up much more money than they produced. But no matter how inefficient they were they were not allowed to fail. They continued sucking up more and more resources.

Edward Chancellor wrote in the Wall Street Journal: “In 1974, the future Chinese premier Deng Xiaoping led a large delegation to the United Nations in New York. Chinese officials discovered, as they prepared for the expensive trip, that the could muster only $38,000 in foreign cash. In those days there were no banks in China except the People's Bank of China, then a department of the Ministry of Finance.

Work Units

Much of economic life as well as daily and social life revolved around work units. In some ways, Chinese work units (danwei) resemble the large-scale bureaucratic organizations that employ most people in economically developed societies. The unit is functionally specialized, producing a single product or service, and is internally organized into functional departments, with employees classified and rewarded according to their work skills. Professional managers run the organization, enforce internal regulations and work rules, and negotiate with other work units and administrative superiors. [Source: Library of Congress]

“Chinese work units, however, have many distinctive qualities. Workers usually belong to the same unit for their entire working life. The degree of commitment to the unit and the extent to which the unit affects many aspects of the individual worker's life have no parallel in other societies. Chinese work units are highly corporate, closed, permanent, and all-embracing groups. In most cases, people are either born into their units (villages count as units) or are assigned to them when they enter the work force. [Ibid]

“Units supply their members with much more than a wage. Housing in the cities is usually controlled and assigned by work units. Consequently, one's neighbors are often one's workmates. If childcare facilities are available, they will most often be provided by the work unit. Recreation facilities will be provided by the work unit. Political study is carried out with one's workmates. In the cities many people meet prospective spouses either at work or through the introduction of fellow workers. For most people, social mobility takes the form of working their way up within the organization. [Ibid]

“If goods are in short supply, they will be rationed through work units. This was the case with bicycles and sewing machines in the 1970s. The same can apply to babies. As part of China's planned birth policy, unit supervisors monitor the fertility of married women and may decide whose turn it is to have a baby. At the other end of the life cycle, pensions and funeral expenses are provided by work units. Travel to another city usually requires the written permission of one's work unit before a ticket can be purchased or food coupons for one's destination issued. Every unit is managed by party members, who are responsible for personnel matters. Outside the farm sector, a written dossier is kept for every member of a unit. Units are often physically distinct, occupying walled compounds whose exits are monitored by gatekeepers. The unit is thus a total community, if not a total institution, and unit membership is the single most significant aspect of individual identity in contemporary China. [Ibid]

“Since the 1950s the individual's political life too has been centered in the work unit. Political campaigns have meant endless meetings and rallies within the unit, and when individuals were to be criticized or condemned for political deviation or bad class origins, it was done within the work unit, by fellow workers. In the post-Mao Zedong era, many people were working side by side with others whom they had publicly condemned, humiliated, or physically beaten fifteen or twenty years before. Much of the quality of life within a unit derives from the long-term nature of membership and human relations and from the impossibility of leaving. Members seem most often to aim for affable but somewhat distant ties of "comradeship" with each other, reserving intimate friendships for a few whom they have known since childhood or schooldays. [Ibid] The work-unit system, with its lifetime membership--sometimes referred to as the "iron rice bowl"--and lack of job mobility, is unique to contemporary China. It was developed during the 1950s and early 1960s with little discussion or publicity. Its origins are obscure; it most likely arose through the efforts of party cadres whose background was rural and whose experience was largely in the army and in the disciplined and all-embracing life of party branches. [Ibid] The special characteristics of the Chinese work unit--such as its control over the work and lives of its members and its strict subordination to administrative superiors who control the resources necessary to its operation--make the unit an insular, closed entity. Units are subject to various administrative hierarchies; reports go up and orders come down. The Chinese Communist Party, as a nationwide body, links all units and, in theory, monopolizes channels of communication and command. Vertical, command relations seem to work quite effectively, and the degree of local compliance with the orders of superior bodies is impressive. Conversely, horizontal relations with other units are often weak and tenuous, presenting a problem especially for the economy. [Ibid]

Wages and Benefits in the Mao Era

Much of any worker's total compensation (wages, benefits, and official and unofficial perquisites) is determined by membership in a particular work unit. There is considerable variation in the benefits associated with different work units. Although the wage structure is quite egalitarian when compared with those of other countries, wages are only part of the picture. Many of the limited goods available in China cannot be bought for money. Rather, they are available only to certain favored work units. Housing is an obvious example. Many collective enterprises may have no housing at all or offer only rudimentary dormitories for young, unmarried workers. [Source: Library of Congress]

“High-level administrative cadres and military officers may earn three or four times more than ordinary workers; in addition, the government often grants them superior housing, the unlimited use of official automobiles and drivers, access to the best medical care in the country, opportunities for travel and vacations, and the right to purchase rare consumer goods either at elite shops or through special channels. Although China is a socialist state, it is not exactly a welfare state. Pensions, medical benefits, and survivors' benefits are provided through work units and come out of the unit's budget. The amount and nature of benefits may vary from unit to unit. The state, through local government bodies, does provide some minimal welfare benefits, but only to those with no unit benefits or family members able to support them. [Ibid]

“Retirees who have put in twenty-five or thirty years in a state-run factory or a central government office can expect a steady pension, most often at about 70 percent of their salary, and often continue to live in unit housing, especially if they have no grown children with whom they can live. In many cases, workers have been able to retire and have their children replace them. In other cases, some large state enterprises have started smaller sideline or subcontracting enterprises specifically to provide employment for the grown children of their workers. In contrast, peasants and those employed in collective enterprises generally receive no pensions and must depend on family members for support. [Ibid]

Examinations, Hereditary Transmission of Jobs, and Connections

Beginning in the late 1970s, China's leaders stressed expertise and education over motivation and ideology and consequently placed emphasis again on examinations. Competition in the schools was explicit, and examinations were frequent. A major step in the competition for desirable jobs was the passage from senior middle school to college and university, and success was determined by performance on a nationwide college and university entrance examination. Examinations also were used to select applicants for jobs in factories, and even factory managers had to pass examinations to keep their positions. The content of these examinations has not been made public, but their use represents a logical response to the problem of unfair competition, favoritism, and corruption. [Source: Library of Congress]

“One extreme form of selection by favoritism in the 1980s was simple hereditary transmission, and this principle, which operated on a de facto basis in rural work units, seems to have been fairly widely used in China's industrial sector. From the 1960s to the 1980s, factories and mines in many cases permitted children to replace their parents in jobs, which simplified recruitment and was an effective way of encouraging aging workers to retire. The government forbade this practice in the 1980s, but in some instances state-run factories and mines, especially those located in rural or remote areas, used their resources to set up subsidiaries or sideline enterprises to provide employment for their workers' children. The leaders of these work units evidently felt responsible for providing employment to the children of unit members. [Ibid]

“The party and its role in personnel matters, including job assignments, can be an obstacle to the consistent application of hiring standards. At the grass-roots level, the party branch's control of job assignments and promotions is one of the foundations of its power, and some local party cadres in the mid-1980s apparently viewed the expanded use of examinations and educational qualifications as a threat to their power. The party, acting through local employment commissions, controlled all job assignments. Party members occupied the most powerful and desirable positions; the way party members were evaluated and selected for positions remained obscure. Local party cadres were frequently suspected by the authorities of using their connections to secure jobs for their relatives or clients. [Ibid]

Growth of Retail Sales in the Post-Mao Era

Retail sales in China changed dramatically in the late 1970s and early 1980s as economic reforms increased the supply of food items and consumer goods, allowed state retail stores the freedom to purchase goods on their own, and permitted individuals and collectives greater freedom to engage in retail, service, and catering trades in rural and urban areas. Retail sales increased 300 percent from 1977 to 1985, rising at an average yearly rate of 13.9 percent--10.5 percent when adjusted for inflation. In the 1980s retail sales to rural areas increased at an annual rate of 15.6 percent, outpacing the 9.7-percent increase in retail sales to urban areas and reflecting the more rapid rise in rural incomes. [Source: Library of Congress]

“The number of retail sales enterprises also expanded rapidly in the 1980s. In 1985 there were 10.7 million retail, catering, and service establishments, a rise of 850 percent over 1976. Most remarkable in the expansion of retail sales was the rapid rise of collective and individually owned retail establishments. Individuals engaged in businesses numbered 12.2 million in 1985, more than 40 times the 1976 figure. [Ibid]

“In 1987 most urban retail and service establishments, including state, collective, and private businesses or vendors, were located either in major downtown commercial districts or in small neighborhood shopping areas. The neighborhood shopping areas were numerous and were situated so that at least one was within easy walking distance of almost every household. They were able to supply nearly all the daily needs of their customers. A typical neighborhood shopping area in Beijing would contain a one-story department store, bookstore, hardware store, bicycle repair shop, combined tea shop and bakery, restaurant, theater, laundry, bank, post office, barbershop, photography studio, and electrical appliance repair shop. The department stores had small pharmacies and carried a substantial range of housewares, appliances, bicycles, toys, sporting goods, fabrics, and clothing. Major shopping districts in big cities contained larger versions of the neighborhood stores as well as numerous specialty shops, selling such items as musical instruments, sporting goods, hats, stationery, handicrafts, cameras, and clocks. [Ibid]

“Supplementing these retail establishments were free markets in which private and collective businesses provided services, hawked wares, or sold food and drinks. Peasants from surrounding rural areas marketed their surplus produce or sideline production in these markets. In the 1980s urban areas also saw a revival of "night markets," free markets that operated in the evening and offered extended service hours that more formal establishments could not match. [Ibid]

“In rural areas, supply and marketing cooperatives operated general stores and small shopping complexes near village and township administrative headquarters. These businesses were supplemented by collective and individual businesses and by the free markets that appeared across the countryside in the 1980s as a result of rural reforms. Generally speaking, a smaller variety of consumer goods was available in the countryside than in the cities. But the lack was partially offset by the increased access of some peasants to urban areas where they could purchase consumer goods and market agricultural items. [Ibid]

Rationing and Pricing in the Mao and Post-Mao Eras

A number of important consumer goods, including grain, cotton cloth, meat, eggs, edible oil, sugar, and bicycles, were rationed during the 1960s and 1970s. To purchase these items, workers had to use coupons they received from their work units. By the mid-1980s rationing of over seventy items had been eliminated; production of consumer goods had increased, and most items were in good supply. Grain, edible oil, and a few other items still required coupons. In 1985 pork rationing was reinstated in twenty-one cities as supplies ran low. Pork was available at higher prices in supermarkets and free markets. [Source: Library of Congress]

“As a result of the economic reform program and the increased importance of market exchange and profitability, in the 1980s prices played a central role in determining the production and distribution of goods in most sectors of the economy. Previously, in the strict centrally planned system, enterprises had been assigned output quotas and inputs in physical terms. Now, under the reform program, the incentive to show a positive profit caused even state-owned enterprises to choose inputs and products on the basis of prices whenever possible. State-owned enterprises could not alter the amounts or prices of goods they were required to produce by the plan, but they could try to increase their profits by purchasing inputs as inexpensively as possible, and their off-plan production decisions were based primarily on price considerations. [Source: Library of Congress]

“Prices were the main economic determinant of production decisions in agriculture and in private and collectively owned industrial enterprises despite the fact that regulations, local government fees or harassment, or arrangements based on personal connections often prevented enterprises from carrying out those decisions. Consumer goods were allocated to households by the price mechanism, except for rationed grain. Families decided what commodities to buy on the basis of the prices of the goods in relation to household income

Consumer Goods in the Mao and Post-Mao Eras

As with food supplies and clothing, the availability of housewares went through several stages. Simple, inexpensive household items, like thermoses, cooking pans, and clocks were stocked in department stores and other retail outlets all over China from the 1950s on. Relatively expensive consumer durables became available more gradually. In the 1960s production and sales of bicycles, sewing machines, wristwatches, and transistor radios grew to the point that these items became common household possessions, followed in the late 1970s by television sets and cameras. [Source: Library of Congress]

In the 1980s supplies of furniture and electrical appliances increased along with family incomes. Household survey data indicated that by 1985 most urban families owned two bicycles, at least one sofa, a writing desk, a wardrobe, a sewing machine, an electric fan, a radio, and a television. Virtually all urban adults owned wristwatches, half of all families had washing machines, 10 percent had refrigerators, and over 18 percent owned color televisions. Rural households on average owned about half the number of consumer durables owned by urban dwellers. Most farm families had 1 bicycle, about half had a radio, 43 percent owned a sewing machine, 12 percent had a television set, and about half the rural adults owned wristwatches. [Ibid]

Image Sources: Ohio State University; Brooklyn College; University of Washington; Nolls China website http://www.paulnoll.com/China/index.html

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

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© 2008 Jeffrey Hays

Last updated September 2016

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