*Unlikely Partners*, on the history of Chinese economic reform

by on October 23, 2016 at 12:45 am in Books, Economics, History, Political Science | Permalink

The author is Julian Gewirtz and the subtitle is Chinese Reformers, Western Economists, and the Making of Global China.  I loved this book.  It is a tour de force on China, the theory of policy advising, and the history of economic thought, all rolled into one.  Here is one bit:

The Chinese side, meanwhile, had learned the hard way about Friedman’s dual persona and that his expertise on inflation could not be separated from his ideological intensity [TC: circa 1980]…Yang Peixin remembered Friedman as “extraordinarily stubborn,” someone who “thinks the world socialist experiment has failed,” and “would not speak politely no matter how high your position.”

It turns out that Wlodzimierz Brus and Ota Šik were two of the most important economists of the twentieth century, mostly because of their influence on China.  Both came from Eastern Europe and centrally planned economies, but urged China to find a workable mixed model.  Šik was a proponent of the ideas of Oskar Lange.

From this book you also will learn about the significant roles of Gregory Chow, James Tobin, and Janos Kornai, all explained with intelligence and lucidity.  I enjoyed this bit:

To the Chinese participants [in the seminar], Tobin’s presentation had an almost theatrical power — after all, they had never before seen an economist in action in this way.  One participant recalled that Tobin’s seemingly magical ability to make policy recommendations from quickly looking at a set of high-level data astonished him and his peers.

At one point during Tobin’s talk, the interpreter burst into tears.  The more influential Kornai instead said this:

“I had in a sense two different faces, one face for Hungary and one face for China.”

More concretely, he was recommending shock therapy for Hungary but not for China.  Friedman, by the way, had more influence when he returned to China for a Cato conference in 1988.  But still the Chinese thought Friedman did not sufficiently understand the special characteristics of the Chinese economy.

Strongly recommended, due out early next year.  Gewirtz, by the way, is a Rhodes Scholar and still has not finished his Ph.d.  I eagerly await his next work.  You can follow him on Twitter here.  He is also well-known as a poet.

1 Ray Lopez October 23, 2016 at 1:51 am

Funny how Friedman was more amendable to the dictator Pinochet. Why is that? First.

2 So Much For Subtlety October 23, 2016 at 3:36 am

Freidman gave Pinochet no advice at all. He only went to Chile to attend two seminars at Chilean universities. Normal academic practice.

However he should have advised Pinochet. After all Pinochet put an end to a budding civil war and has been accused of killing *or* torturing some 3000 Communists. The Chinese Communist Party admits to murdering 30 million innocent peasants. The moral balance is entirely with Pinochet and in a just world he would have got a Nobel Prize for saving Chile.

3 Thomas Taylor October 23, 2016 at 5:21 am

It is not 3,000 dead or tortured, it is 3,000 dead or missing (let’s just say Pinochet’s regime did not bother with legal niceties).They were not all Communists (I really love all the acrobatics Fascists do to justify their ellective affinities to regimes like Pinochet’s or Saudi Arabia’s while they feign outrage towards, say, Iran), there is no good reason to believe that without closing the Congress, outlawing the activities of even moderate political parties and 17 years of brutal dictatorship Chile would have gone Communist or to state that if it had it would have killed as many people as the more murdureous Communist regime ever to exist (I guess it is what it means not correcting for population).

4 Michael October 23, 2016 at 5:58 am

to summarise:

Friedman (or SMFS, or who else did you mean?) is a Fascist (!) for not denouncing Pinochet and Saudi Arabia, who, as we all know, have a really great press…

…while you are on record taking the side of the victims in, say, Venezuela, or, say, Mozambique…

…basically, insane economic policies have nothing to do with communist ideology, and an economist who makes this link, is just a Fascist

Thank you for making this very clear

5 Thomas Taylor October 23, 2016 at 6:27 am

I was directly replying (I really love the knee-jerking reaction of saying Pinochet’s regime was wonderful, he deserved a Peace Nobel Prize– well, he was not president of a democracy, those guys’ Nobels are the bad ones– and, in the same breath, trying to explaing away Friedman’s supporting his regime– no, no way he was a supporter!) to someone singing the praises of Pinochet’s dictatorship. Friedman’s relation with it is another matter, which has precious little to do with the comment I was replying to.

6 So Much For Subtlety October 23, 2016 at 6:19 am

Thomas Taylor October 23, 2016 at 5:21 am

Are you seriously claiming that the Chinese regime does bother with legal niceties? So Pinochet killed even fewer people than I said. Or about one twenty thousandth of the death toll of the Chinese Communist Party. A death toll you have not seen fit to condemn.

What acrobatics? You have not heard me say anything about Saudi Arabia or Iran. But if I did, it would be simple and straight forward.

Allende had fallen out with the Parliament, ruling over the objections of the Supreme Court, alienated the military, was arming “workers militia” and had imported both STASI experts from East Germany and thugs from Cuba. You can deny the Communist coup attempt if you like. It won’t help you.

The 1970s were a bad time to go Communist. There is no reason to think Chile would have been any different to Cambodia. But even if it had been, Castro has killed 30 times as many people as Pinochet. Another death toll you seem indifferent to.

Friedman is not to be condemned for advising Pinochet. Which he didn’t do anyway. He is to be condemned for advising the much greater murderers in Beijing. No doubt he thought that reform would lead to democracy. As it did in Chile. But so far it hasn’t. All he did was make a weak impoverished Communist dictatorship into a rich and powerful Communist dictatorship. Which kills and tortures without you finding the motivation to condemn.

7 Thomas Taylor October 23, 2016 at 6:48 am

“Are you seriously claiming that the Chinese regime does bother with legal niceties?”
Today, FWIW, they probably are a more “lawful” dictatorship than any “we” supported in Latin America. Unfortunately the Law there, like in those countries “we” supported because “we” care so much about freedom and human lives, makes the country a dictatorship (by the way, this comunist dictatorship bothers “our” democratic conscience “us” than, say, Cuba– go figure). But it was not what I was talking about anyway– you choose to lie about it because you had painted yourself into a corner with a previous lie. What I said was, it is not true that Pinochet is thought to have murdered OR tortured 3,000 Communists. More than 3,000 people, not all of them Communists by any stretch of imagination, were killed or are missing (they can not be proved dead because no document has been released and body has been found). It is a separated matter from the thousands who were tortured. The same Congress that had ended up opposing Allende was closed, the press was under government control and the legal political parties– even those that opposed Allende– were crushed. It lasted 17 years, more than four American presidential terms– it was not some temporary desperate measure to deal with some emergency. It was the kind of regime “we” say is bad when their leaders don’t favor “our” interests. As for Saudi Arabia’s bad press (not so bad, FOX News was much more outraged with Obama bowing before Japan’s Emperor than with Bush doing the same– not to mention all the kissing and romantic walks hand-in-hand before Saudi Arabia’s King), I don’t think they care: they themselves don’t have a free press. They could care a little about what our cou try does. But evidently they are “our” friends because “we” care so much about freedom and “we” oppose terrorism so much.

8 So Much For Subtlety October 23, 2016 at 6:56 am

Thomas Taylor October 23, 2016 at 6:48 am

So you are comparing China *now* – a subject about which you are utterly ignorant – with Latin America at the height of the Cold War? How about comparing like with like? China in the 70s with Latin America in the 70s? Could you please identify for me the legal basis of the Cultural Revolution? Millions of people were tortured and murdered. Could you please identify the law that enabled the government to do this?

What is the rest of your post trying to say, except to change the subject? I can understand why you do not want to address the actual issue and would prefer to cloud the issue with as much distraction as possible, but do you really think it serves any purpose?

9 Thomas Taylor October 23, 2016 at 7:16 am

I really love it. You were caught lying four times and now you think five is the charm. No, Pinochet’s victims were not all Communists; no, it was more than 3,000 people dead or presumably dead (not to mention hundreds of thousands of exiles), not dead OR tortured; there is no reason to believe Chile needed thousands of murders and almost two decades of dictatorship to avoid become a Communist country; there is no good reason to believe Chile, whatever its regime, would have to go throught a Cultural Revolution or a Great Step Forward — you deliberately choose the most radical and murderous Communist regime and the most populous Communist country, one who had broken up with the “revisionist”, not tough enough Soviet Union, who were the supporters of Chile’s far-left back then. Last, but not least, I can assure you, in general, people knew pretty well who died or not during the Cultural Revolution–the Red Guards were not exactly shy when throwing people from their houses’ windows (it is a different situation from– not better than, mind you– a country where people just disappear– I was trying to explain you why the concept of “presumably dead” is completly different from “tortured”, to be frank, trying to mix them up is a counterproductive form of lying).

10 So Much For Subtlety October 23, 2016 at 7:25 am

Thomas Taylor October 23, 2016 at 7:16 am

So the more you try to defend the indefensible, the more hysterical you are forced to become. I have not lied once. You continue to ignore Allende’s East German and Cuban experts. Which you need to do to pretend Allende was a democrat and Chile was safe. Well Chile’s Parliament and Supreme Court did not think so. Inviting the military to take over.

No one has suggested Chile would have gone through the Great Leap Forward – please try to get the names right. That is a nice piece of distraction. But Communist regimes all end up with the same death tolls. And the STASI was not in Chile for the warm weather.

As a matter of fact, the Red Guards did not record deaths. No one has a clue how many people they killed. And occasionally ate. A practice you still cannot find it in yourself to condemn. While remaining very vocal about Chile. An interesting set of priorities. I would recommend Yang Su’s Collective Killings in Rural China during the Cultural Revolution.

So why is it you cannot condemn China’s vastly great death toll? Or accept the basic fact that advising the PRC was a much greater moral lapse than advising Chile (which Friedman did not do)?

11 Thomas Taylor October 23, 2016 at 7:34 am

You lied four times as documented above.
Again, I am not sure what Allende’s STASI guys in 1973, when the Congress itself decided against Allend, has to do with Chile being a brutal dictatorship in 1989, with closing the Congress down, with papers being under governent control, with opposition being banned, with political enemies being murdered (oh, now I get it, only a long-lived dictatorship could prevent Chile from becoming… a long-lived dictatorship)

12 Thomas Taylor October 23, 2016 at 7:54 am

“As a matter of fact, the Red Guards did not record deaths. No one has a clue how many people they killed. And occasionally ate. A practice you still cannot find it in yourself to condemn.”

Oh God, he is talking seriously. No, I don’t intend to give the Nobel Prize to Mao — what bothers you is that I don’t intend to give it to Pinochet or to Saudi Arabia’s dictator du jour, either. I don’t like dictatorships, no matter who is making money out of them (and, whoever it was, it was not the Chileans — Chile’ s per capita GDP only became again the same proportion of its neighbours’ per capita GDP it was in the first years of Allende’s Administration after Pinochet left — and some people say recovery under Obama is slow– and trust me, it is not because the 1980’s were an unmitigated success for themother Latin American countries– ask the Argentinians or the Brazilians about thoae days).
No, I guess keeping records was not the Red Guards’ strong suit– it hadn’t to be when you are humiliating, terrorizing, torturing and killing people to all people to see (and fear). Deng’s son was thrown from a window. Did the Red Guards recorded meticulously the fact? I don’t know, to be fair, I don’t care. It is not the same thing as being tortured to death in a dungeon– this is exactly what the word “presumably” means. Again: you LIED. It was more than 3,000 people (not all them Communists, except in Kissinger’s way of thinking: whoever defends a democracy is called a Communist) killed or presumbly killed, not killed OR tortured.

13 Ray Lopez October 23, 2016 at 5:30 am

@SMFS – what Thomas Taylor said and substitute “Chicago Boys” for “Friedman”, the former being the latter’s intellectual descendants. My original post rehabilitated, communist-style. I love it when I can do that.

14 So Much For Subtlety October 23, 2016 at 6:24 am

So Friedman is responsible for every action of every one of his students? Or have you just admitted that your original complaint was nonsense?

Not that anyone should apologize for advising Pinochet. The good guys were on his side.

15 Thomas Taylor October 23, 2016 at 6:57 am

“The good guys were on his side.”
The bad guys, I guess, were the millions of Chileans who had their civil rights denied, their press controlled, their political parties crushed, their right to elect their own leaders denied (I remember having heard something about the “consent of the governed” once), the most basic checks and balances lost.
“I don’t see why we need to stand by and watch a country go communist because of the irresponsibility of its own people.” (i.e. stand by and see a country keep its democratic institutions instead of a 17-year pro-American military dictatorship)—Henry Kissinger, June 27, 1970.
What is that I keep hearing about people who think they can plan other people’s lives better than those people can?

16 So Much For Subtlety October 23, 2016 at 7:01 am

The majority of Chileans were on Pinochet’s side. After all, Chile had no chance whatsoever of keeping its democratic institutions once Allende started importing East German STASI advisers and Cuban muscle to use against his own people. The only question was whether Chile would become a totalitarian Communist state like Cambodia or, if they were lucky, Cuba or whether it would have a mild military dictatorship before resuming democracy.

17 Thomas Taylor October 23, 2016 at 7:26 am

Allende’ STASI guys. So this is why Chile was a brutal dictatorship in 1989, 16 years after Allende died. Living and learning. You know, it just dawns on me that if Mr. Obama closes the Congress, muzzles the Press, disbands all political parties and bans elections (I had forgotten, he already did all those things– we live in a scaaaary dictatorship), he can claim most Americans are at his side– who is to say he is not right (Castro managed to get his Constitution approved by popular vote– it is good to be king, in Chile or Cuba). After all, we can’t keep our democratic institutions when whatever is happening– there is always an excuse, as the Pinochet’s apologists are always ready to show).

18 So Much For Subtlety October 23, 2016 at 6:50 am

Again we see an odd double standard. Friedman did not go to Chile to advise the government but he is condemned anyway. Włodzimierz Brus on the other hand personally took part in Stalin’s crimes against his own people and the people of Poland. His wife was wanted for crime against humanity in Poland. A woman so brutal she was fired by Gomulka’s government for her treatment of prisoners. Someone who was too Stalinist for post-1956 Poland.

Which makes me think that his greatest contribution to China was being ignored. What could he have said that would have been any use to them at all?

19 Rock Lobster October 23, 2016 at 3:09 am

My non-expert sense on this general topic is that the Washington Consensus got a bad rap because it combined genuinely useful supply-side reforms with contractionary demand-side policy at the same time. In other words, you can privatize the steel and energy industries and liberalize labor markets, but if you insist on fiscal and monetary contraction at the same time, people will reject the whole package as being contrary to their interests and conclude that the whole thing is some kind of Western conspiracy. Or, to put it very shortly, it may be “the correct thing to do,” but it’s not a Coasian-positive bargain for a sufficiently high percentage of the population, at least for the relevant time horizon.

I realize this comment is somewhat tangential, but it’s my first thought whenever I read an article about how “dumb socialists in Country XYZ just don’t understand that capitalism is super duper neato burrito.”

20 Ray Lopez October 23, 2016 at 5:35 am

@Rock Lobster – parts of my email to a savant, which addresses your tangential topic. Agree with the below? – RL

Is the Russian privatization fiasco of the 1990s a refutation of the Coase theorem? See Rajan blurb below. If not, why not? Why should it matter to society if a monopolist railroad (read: RU oligarchs) has the right to emit sparks (and destroy adjacent farmland) rather than give that right to thousands of perfect competition farmers (read: average poor Russian person)?

One way to save the Coase theorem is to say it only applies to developed countries having a well-developed rule of law where, among other things, the law allows oligarchs to be broken up via lowering barriers to entry, new competition, and the like, so over time it doesn’t matter if (in these developed countries) the railroads/ oligarchs ‘win’ the first round.

RL

Some economists have argued that it does not really matter who owns the [formerly Russian state owned] property; all that matters is that property find its way into private hands.55 55 See, for example, Maxim Boycko, Andrei Shleifer, and Robert Vishny, Privatizing Russia (Cambridge: Massachusetts Institute of Technology, 1995). Hindsight is always twenty-twenty. In all fairness, given that there was little in the way of an entrepreneurial class, those who reformed Russia had very little with which to work and not much guidance from past work. Many of the recent advances in institutional economics have come from those who learned from their Russian experiences.

Our arguments suggest otherwise. Property in the wrong hands, especially if concentrated, can be very detrimental both to reducing the power of the state and to the emergence of free markets. The Russian republic provides one clear illustration. In an underhand deal to win support for the 1996 presidential election, Boris Yeltsin agreed to give a few powerful operators some of the best Russian companies at bargain-basement prices. This was just the most egregious of events by which Russian industry and finance became dominated by a few, whose primary competence was contacts rather than business acumen. It is little wonder that these “businessmen” came to be known as oligarchs, reminiscent of the reactionary feudal lords who stood in the way of capitalism.

Rajan, Raghuram; Zingales, Luigi. Saving Capitalism from the Capitalists: How Open Financial Markets Challenge the Establishment and Spread Prosperity to Rich and Poor Alike (p. 155). The Crown Publishing Group. Kindle Edition.

21 Tangent Redux October 23, 2016 at 8:18 am

I find it quite wonderful that my 12 YO son discovered, likes and listens to “Rock Lobster” by the B-52’s. I almost didn’t have the heart to tell him I danced to that in the 180’s.

22 Thor October 23, 2016 at 12:21 pm

You are mistaken. At best, one can shake to that song, not dance.

23 Tangent Redux October 23, 2016 at 1:00 pm

The woman I was dancing with – a beauty to rival any of Rays playthings – though it qualified.

24 The Engineer October 23, 2016 at 4:45 am

In “1984”, Orwell had the Communists move beyond ideology and espouse pure power over others. Interesting how in real life, that did not happen in China. The Chinese still have a soft spot for “socialism with Chinese characteristic”, I suppose because it gives the Communist Party legitimacy. With all their power, they still need the pretense of an ideology to have legitimacy, perhaps in their own minds.

25 Michael October 23, 2016 at 5:36 am

Don’t believe everything you hear. Control over the economy *is* (quite pure) power over others. If you can cover it up with ideology, that’s a nice bonus

Western governments do this, too, they just have to go through other contortions for justification. Here, it’s called things like industrial policy, health care, education, or, in many cases, just ‘regulation’

26 prior_test2 October 23, 2016 at 6:27 am

‘Control over the economy *is* (quite pure) power over others.’

Which is why libertarians dream of being the ones controlling it, without any checks over their ability to do as they wish..

27 Alan October 23, 2016 at 8:21 am

As little as possible within the bounds of decency?

28 rayward October 23, 2016 at 7:06 am

Is this further evidence of Cowen’s shift in thinking about economics and what works and what doesn’t? There is a dose of irony: Tobin believed was concerned that excessive inequality would create a drag on economic growth and promote financial instability; China’s economic growth has been exceeded only by its growth in inequality. Is the joke on the west? Today’s annual GDP in China is $9 trillion more than its annual GDP in 2000, representing an enormous shift of global production and income from countries with relatively low levels of inequality to a country with one of the highest levels of inequality, contributing to global secular stagnation even as China’s economy continues to grow in large part due to unparalleled fiscal stimulus.

29 Axa October 23, 2016 at 7:56 am

A patient has an ear infection while other a broken arm, one is 60 yr old while the other is 6….. then act surprised because the doctor’s prescription is not the same. Consistency is good but not the parameter to evaluate solutions.

Extreme inequality is desirable outcome as long as poor people believe they can be rich tomorrow if they work hard . However, a very popular idea these days is that you can’t become rich anymore because X or Y.

Finally, this listicle brings good perspective on the trillion USD show “The True Story Of The 1980s, When Everyone Was Convinced Japan Would Buy America” http://alturl.com/bnwhf

30 Thiago Ribeiro October 23, 2016 at 9:00 am

Oh, if “poor people believe”. We are not talking about realities anymore, then. Most people who work hard don’t get millionairies actually (no, not working hard probably wouldn’t make them better off, quite the opposite, but this a separated issue from determining if having people believing they can get rich when they almost surely won’t get rich no matter what is really a desirable –desirable to whom?– outcome.

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