A History of Wealth and Poverty: Why a Few Nations are Rich and Many Poor, by John P. Powelson.

Appendixes for Chapter 12

Appendix 12.1: Historical References to China's Legal System

State Power

  1. "The purpose of legal procedures, in Western Chou times [1122-771 BCE], appears to have had nothing to do with maintaining cosmic harmony; they were designed, rather, to uphold the authority of the government and to maintain order and tranquillity among the people. These were also the ends that law, as conceived by the Legalists, was calculated to achieve." [250]
  2. Creel "sees the Legalists as preaching a philosophy conducive to the construction of a centralized government over widely dispersed and diverse peoples who had yet to become a nation." [251]
  3. Discovery of the Yunmeng texts in a tomb in 1975 reveals that "in the third century B.C. the Qin state possessed an extensive corpus of administrative and criminal law, handled by a complex hierarchy of officials . . . a considerable body of laws must have existed before Shang Yang. . . . The genesis of these laws will have coincided, I believe, with the creation of the centralizing and increasingly bureaucratic states in the course of the eighth and seventh centuries before our era." [252]

Criminal, Civil, and Commercial Law

  1. "Chinese written law . . . was basically criminal and administrative law. Large areas which fall into civil law, or trade law were never codified. Cases of this type were solved by processes of arbitration or mediation between the partners or, more often, between the families involved." [253]
  2. "Foreign trade, especially the junk trade, was always extensive, . . . [but] all this clandestine activity was institutionally illegal; hence any assertion of economic power based on this trade was an admission of crime." [254]
  3. In the Qing code, "the impact of the legal system on local commerce was further limited by a general tendency in Chinese legal administration to be flexible in the application of existing laws. It was felt that achieving justice in the circumstances of an individual case was more important than rigid adherence to the letter of the law." [255]
  4. "There were no statutes of any kind [on the law of sales], however incoherent. The case law was underdeveloped and, in any event, had no binding force. It was the joint product of individual traders, guild regulations, and local customs. It depended for adherence not on the enforcement power of the state, . . . but rather on its acceptance by the merchants and the public. . . . Because there was no national or even regional body to legislate rules, the trade practices tended to be localized geographically and to specific trades." [256]

Appendix 12.2: Some Decisions Made by the Government of the People's Republic without Much Consultation with Those Affected

"In 1949 Mao proclaimed a 'shift to the cities' and the need to learn from the Soviet example in industrialization." [257] Industrialists and farmers, who were being or were about to be displaced as owners and operators, did not bargain for this change. Indeed, they had no say about it. In 1950, "the entire fiscal administration was reorganized to give the central government control over formerly local taxes, to eliminate the handling of official funds by private banks, and generally to reduce expenditures." [258] There were no vehicles by which local governments or private banks might protest or even express their views on how their lives and economies might be affected.

In the Great Leap Forward of 1958-60, the rulers mandated communes, communal dining halls, women in the fields instead of taking care of children, and the construction of "tens of thousands of reservoirs, thousands of hydroelectric power stations, hundreds of miles of railways, bridges over the great rivers, new canals and highways, more mines, more irrigated land. But this all-out effort at instant growth led to massive errors, such as the salinization of newly irrigated land, and a tremendous waste of manpower, which was withdrawn from agriculture." [259]

During the Great Leap, the government ordered farmers to build backyard steel mills and to operate them, even as grain lay rotting on the fields for want of harvesters.

[In] one hsien [county] in Kwantung province . . . 20,000 people starved to death. Nationwide, the mortality rate doubled from 1.08 percent in 1957 to 2.54 percent in 1960. In that year the population actually declined by 4.5 percent. Anywhere from 16.4 to 29.5 million extra people died from the leap, because of the leap. [260]

The ensuing Cultural Revolution of 1967 reflected a power contest between Mao and those who criticized him for the Great Leap and other errors. In this "revolution," students and others in the Red Guards ravaged buildings, destroyed libraries, tortured intellectuals and forced political foes into exile in the country, so they would experience how peasants lived. But twenty years later: "As mature adults, these people should be the backbone of China's modernization. But millions left school to wage revolution, and many never went back. Now, without skills or education, they watch their younger brothers and sisters leapfrog them to the top." [261]

Many more examples have appeared in recent newspapers, but space limits the number that can be cited.

Appendix 12.3: Reports of Inefficiencies in the Chinese Economy

  1. The Beijing newspaper, Kwangming Jih Pao, described a mercury mine in Kweichow province in which skilled technicians had been relegated to menial jobs where they were not using their training; construction materials, always in short supply, had been acquired through illegal barter rather than normal purchase. Workers seeking eggs had to pass through "five layers of governmental purchasing agencies between the commune and the capital. In the process over 20 percent were spoiled." [262]
  2. Jenmin Jih Pao reported "poor management and shoddy products [such that] of the $4 billion worth of farm machinery stored in China, one-third was unsalable because of low quality." [263]
  3. "In the 1970s, Tibetans had to obey Mao Zedong's arbitrary order to 'take grain as the key link' and grow more wheat and less barley. Their preference for barley, which is ground with yak butter, tea and salt for the traditional zampa that Tibetans eat, was ignored. So was the cold, windy climate. Winter wheat fared poorly in the high altitude. It needed too much water, used up fertilizer and leached the soil. . . . [T]ens of thousands of Tibetans were pushed to the brink of starvation." [264]
  4. "Productivity remains stifled by the 'iron rice bowl,' a job tenure that pays workers however badly they perform." [265]
  5. "China's factories are inefficient; over 15 percent of them lost money last year, many because of state-administered prices that don't reflect their cost of production. Meanwhile, factories that benefit from outdated pricing churn out big profits." [266]
  6. "Western economists estimate that subsidies amount to 40 percent to 50 percent of government spending." [267]
  7. "Enterprises commonly pay four different prices for the same raw material: one price for the 30 percent supplied by the central government, another for the 30 percent supplied by the provincial government, a third for the 10 percent supplied by the city, and yet another for the last 30 percent obtained in barter deals from customers." [268]
  8. "So far, China's leaders have been reluctant to [allow] truly free decision making or prices, fearing chronic production imbalances and urban unrest over higher food prices." [269]
  9. "A desperate shortage of cash has left some local governments unable to pay farmers for their crops and may force many state-owned factories to close." [270]
  10. "A national austerity program has made working capital virtually unattainable. Skewed pricing policies create crippling shortages of raw materials and energy. Shifting political winds mean sharp swings in economic policy. . . . [I]t is still personal connections, not business skills, that matter most in running an enterprise." [271]

Appendix 12.4: Government-Mandated Decisions for a Freer Economy in China

Following is a list of newspaper reports on decisions made by the central government to free the economy. Although these may be the "correct" decisions for economic efficiency, nevertheless they were not bargained for by the groups concerned. Thus, the beneficiaries do not have enough power, or leverage through vertical alliances, to assure that they are not revised or violated. For reports of reversals already occurring, see the next appendix.

  1. At a meeting of the National People's Congress in 1980, Deputy Prime Minister Yao Lin declared: "Regulation of the economy through the market will be carried out under the guidance of the state plan." He called for experiments to "give expression to the principle of regulation through planning combined with the regulation of the market." [272]
  2. Since taking power in 1978, Deng has "opened China to foreign technology and investment, restored family farming in the countryside, and encouraged modern management in industry." [273]
  3. "Private enterprise, which is now encouraged nationwide in China, is being hampered by local authorities who have arbitrarily imposed crippling taxes on many successful small businessmen." [274]
  4. "But once a producer has sold the assigned quotas at fixed prices, he is to be free to sell the surplus at flexible prices. Factories that fail to meet assigned goals are to be fined or to have their allotment of raw materials and electric power reduced." [275]
  5. In October 1984, the Chinese government announced sweeping changes in economic controls. Many prices would be de-controlled. "The decision called for each plant director to assume responsibility for his enterprise and to link wage increases and bonuses to higher productivity by the workers." [276]
  6. "At first, investment opportunities were restricted to four special economic zones along China's southeast coast. Last May preferential treatment was extended to 14 other coastal cities and the island of Hainan. The more backward Chinese interior has complained about being left out, so now provinces like Qinghai are being permitted to seek their own outside contracts." [277]
  7. "China plans to halt state purchases of grain, produce." [278]
  8. "In agriculture [in Tibet], the household had been restored as the basic unit of production and 90 percent of agricultural families have been given leases over their lands for between 30 and 50 years. This is double the most generous leases in the rest of China." [279]
  9. "For the first time in the four decades of Communist rule, constitutional protection will be accorded to private enterprise and the right of people to buy and sell the right to use land in what amounts to the re-emergence of private property." [280]
  10. "A law intended to strip grass-roots Communist Party committees of much of their power and concentrate decision-making in the hands of technocratic managers was approved by China's legislature." [281]
  11. In 1988, Hainan Island was selected as an enclave of capitalism, experimental beyond what would be permitted on the mainland. "Private enterprise . . . is to constitute the economic underpinning of Hainan's economy. Much of the island's land will be able to be bought and sold. . . . Foreign investors . . . are to have extraordinary discretion in operating their enterprises, in hiring and firing, in repatriating profits and in negotiating contracts." [282] But in an atmosphere in which the rules may be changed by the supreme power at any time, there would be some question as to whether private enterprise would respond.
  12. "China is determined to adopt far-reaching reforms, including a partially convertible currency early next year, to speed its transition to a market economy, says Vice Premier Zhu Rongji, the nation's economic czar." [283]

Appendix 12.5: Reports of Reversals of Liberalizing Policies in China

  1. In an emergency conference in February 1985, Prime Minister Zhao defended but then cut back "a package of liberalizing urban measures that had been hit by a wave of irresponsible bank-borrowing and corruption only months after they were announced." [284] It is not clear whether "irresponsible" and "corruption" are words of the reporter or of the government. But such statements, to throw the blame on others, are characteristic of governments that rescind decisions as soon as they run into political opposition.
  2. The policy of free hiring announced in 1986 would affect only new employees. Others would fall under "an arrangement that locks workers into their jobs and has helped paralyze industry and keep China on starvation rations during the great post-World War II expansion enjoyed by so much of the rest of the world." [285]
  3. In 1987, Chinese newspapers "carried numerous articles on central planning, the slowness of consumer spending and a return to the ethic of hard work and thrift — a retreat from the policies propounded by Mr. Deng and party aides known as 'reformers.' " [286]
  4. "A proposed law that would prevent Communist Party officials from interfering with the operations of China's state factories and enterprises appears to have become the latest casualty in the crackdown on Western influences here." [287]
  5. Chairman Peng Zhen of the National People's Congress "urged a reassertion of some traditional socialist economic practices, such as a renewed emphasis on central planning." [288]
  6. "The Chinese Government, in an effort to reassert control over the country's economy, has imposed a series of stringent measures in the last week intended to reduce sharply the role of the free market and local decision-making in economic affairs." [289]
  7. Prime Minister Li Peng called for the spirit of centralization to replace that of liberalization. [290]


Copyright © 1994 by the University of Michigan. First published in the USA by the University of Michigan Press, 1994.

Published on the World Wide Web by The Quaker Economist with permission from the University of Michigan Press, 2005.

Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 2.5 License.