China Emerging_ 1978-2008 - Xiao-bo , Wu [24]
Allowing Prices to “Break through the Pass”
I
n 1988, China welcomed a distinguished American visitor, Milton Friedman (1912–2006). The first Nobel prizewinner in economics to visit China, he was warmly received by the country’s central leaders. Nobody expected that the recommendations resulting from this trip would
lead to the first major wave of ideological debate since reform and opening up started.
The reason China’s leaders received Friedman was profoundly related to what was happening in the international arena at the time. The entire world was in ferment in the latter part of the 1980s, as liberation movements swept through Eastern Europe. Gorbachev had engineered drastic social
On December 27, 1988, a painting exhibition displaying previously forbidden oil paintings was held in Beijing. An average of fifteen thousand people came to see the exhibition every day.
reforms in the Soviet Union, which eventually led to the dissolution of the largest socialist entity on the planet. In 1988, the Austrian economist Friedrich von Hayek (1899–1992), also a Nobel prizewinner, published a book titledThe Fatal Conceit. In the book, he argued that striving for a highly planned economy was a kind of “fatal conceit” on the part of “rationalists,” and he systematically laid out the limitations of a planned economy. In the introduction, he wrote that the kind of order that comes about spontaneously under circumstances that are not pre-designed greatly exceeds any plan that humans intentionally try to achieve. This was known as the “principle of spontaneous self-organization,” which describes a selforganizing system of voluntary cooperation. Hayek’s book provided timely theoretical ammunition to capitalist countries in the West and was also considered as a veritable treasure by Chinese scholars.
In 1988, China was immersed in yet another economic fever. Several years of driving the economic engine at high speed had put the economic cycle in a very sensitive and unstable range. The supply of inputs was becoming increasingly tighter, as the number of enterprises multiplied and light industry charged forward. More serious, however, were the ever more apparent negative consequences of the two-track pricing system that had been operating for four years.
These negative consequences were related to the way in which the system could be manipulated for private gain. An article in China’s Economic Daily propounded a “theory of how Guan-Daosare bringing calamity upon the country.” It stated bluntly that the “prices of raw materials are soaring, and while the state issues edicts against raising prices, the results are minimal. The primary cause of this situation is that the government and enterprises are not separate. Officials and businessmen cannot be distinguished.” It was just at this moment that Milton Friedman came to China.
As the main representative of the Chicago School of Economics, Friedman was an advocate of “economic freedom” and “free markets.” He was known internationally for his studies on price theory and monetary
G L O S S A RY 2 . 6
Guan-Dao
Speculators connected to officialdom or the officials themselves (“guan”), who purchased and resold goods for a profit. China’s economic reforms were still at an experimental stage in the mid-1980s, and a two-track pricing system allowed some officials and their relatives to buy at the lower official price and resell at the higher market price. The explosive profits thus made created an acute sense of injustice among the people and even “hatred” for such officials.
theory. He had offered China a “prescription” that ran true to his freemarket stance. He recommended that the Chinese government should release the commodity prices because he considered the Chinese reforms to have reached a crucial stage. The Hong Kong Economic Journal quoted him as saying, “One should not confuse the release of prices with inflation. If you release prices, only a portion of products will rise in price. People will feel some pain in the first few days, but will quickly discover that