A Great Revolution: Developing a Socialist Market Economic System

From: English Edition of Qiushi Journal Updated: 2011-09-19 19:17
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  China has successfully engineered a great historical change during the 30 years since 1978 when China began to implement the policy of reforms and opening up, changing from a highly centralized planned economic system to a dynamic socialist market economic system. Time has shown that the development of a socialist market economic system is a historical contribution made by the Communist Party of China to Marxism and scientific socialism.

    I. A Theoretical Innovation and System Transformation: Changing from a Planned Economy to a Market Economy

    During the 1950s, an early period of socialist economic development, China copied the planned economic system of the Soviet Union because the country lacked practical experience in this regard. The basic structure of this system was a monolithic structure consisting only of public ownership and a fully planned economy. Copying the economic model of the Soviet Union was in line with the traditional theory of socialist economics borrowed from the Soviet Union. According to this theory, socialism has pure public ownership as its economic base and a planned economy is its essential feature. In particular, the view that a planned economy is exclusive to socialism and a market economy is exclusive to capitalism made it impossible for people to find the defects in the system causing problems in economic activity. Often they attributed problems such as a lack of initiative on the part of enterprises, a lack of work incentive on the part of employees and a slowing down of the momentum of economic growth to defects in the style of economic management. Only minor repairs, patches and adjustments in the division of central and local powers were carried out to address the problems.

    China’s reform has been guided by theoretical innovations. Following the Third Plenary Session of the Eleventh Central Committee of the Communist Party of China (CPC), China’s economic theoreticians carried out heated academic debates on the new situation and new circumstances that emerged in economic activity resulting from economic reform, a major trend at the time. In spite of the fact that there were differences among them concerning quite a few issues, they formed a basic common understanding on the basic orientation of reform, i.e. the development of a commodity economy and introduction of market forces, thus forming the basic theory for a socialist market economy. For instance, one breakthrough was in moving away from a product economy under socialism, resulting in the formation of the theory of developing a commodity economy under conditions of socialism. Another breakthrough was in moving away from the theory that socialism required total public ownership, resulting in formation of a theory of a combination of a variety of ownerships with public ownership,resulting in formation of a theory of a combination of a variety of ownerships with public ownership as the dominant element. Finally, a breakthrough was made in the use of government regulation to direct economic activities, resulting in the formation of the theory of modern government function that relies on economic tools to carry out macroeconomic regulation.

    Comrade Deng Xiaoping played an outstanding and irreplaceable role in the development and innovations in economic theory over the past 30 years. He was the chief architect of China’s reform and opening up policy as well as the founder of the theory of a socialist market economy. As early as in 1979, Deng Xiaoping advanced the concept of “a socialist market economy.” He said, “It is wrong to maintain that a market economy exists only in capitalist society and that there is only ‘capitalist’ market economy. Why can't we develop a market economy under socialism? Developing a market economy does not mean practicing capitalism. While maintaining a planned economy as the mainstay of our economic system, we are also introducing a market economy. But it is a socialist market economy.” (Selected Works of Deng Xiaoping, Vol. II, Eng. ed., Foreign Languages Press, Beijing, 1995, p. 239) He also made a distinction between the “basic economic system” of a society and the “method” of organizing and managing economic activities and distribution of resources, stressing that using “the market” is a “method” and “economic tool” for developing socialism, and thereby logically explaining and demonstrating that the distinction between capitalism and socialism does not lie in either planning or the market. The idea of developing “a socialist market economy,” which Deng Xiaoping proposed and repeatedly stressed, widened people’s horizons and promoted the reform in which market forces are introduced and utilized.

    The Third Plenary Session of the Twelfth CPC Central Committee held in October 1984 formulated the idea of a “planned commodity economy” and defined policies and measures to reduce the role of the planned economy and expand the role of market forces. Following these moves, market-oriented reforms made rapid strides. Deng Xiaoping attached great importance to carrying out reform in China. In 1992, his famous talk delivered on his tour of southern China was published. He said, “The proportion of planning and that of market forces is not the essential difference between socialism and capitalism. A planned economy is not equivalent to socialism, because there is planning under capitalism too; a market economy is not capitalism, because there are markets under socialism too. Planning and market forces are both means of controlling economic activity. The essence of socialism is liberation and development of the productive forces, elimination of exploitation and polarization, and the ultimate goal of prosperity for all.” (Selected Works of Deng Xiaoping, Vol. III, Eng. ed., Foreign Languages Press, Beijing, 1994, p. 361) He stated that, “The chief criterion for making that judgment should be whether it promotes the growth of the productive forces in a socialist society, increases the overall strength of the socialist state and raises living standards.” (Selected Works of Deng Xiaoping, Vol. III, Eng. ed., Foreign Languages Press, Beijing, 1994, p. 360) This cleared away the ideological obstacles hindering in-depth market-oriented reform in China.

    Deng Xiaoping’s theory of the socialist market economy ended the great debate over the roles of the market and planning that had continued for many years. The theory proved to be of great theoretical relevance, introduced a new way of doing things based on reform, and reflected the practical need to develop Chinese socialism, strengthen the country and make the people prosper. Deng Xiaoping’s theory on the socialist market economy is an important achievement in the effort to tailor Marxism to conditions in China. This theory clearly defined the orientation for China’s reform and restructuring efforts and laid the corner stone for further development of the theory of the socialist market economy in China. The Fourteenth National Congress of the CPC convened in 1992 established a socialist market economy as the objective of reforms.

    II. The New Conditions in the New Period and Improvement of the Socialist Market Economic System

    A number of major problems are affecting current economic activity. There is too much emphasis being put on the scale of economic growth and not enough attention being paid to modifying the pattern of development, rapid industrialization is putting a strain on resources, the environment and the ecology, the gap in the rate of economic development between urban and rural areas and among regions, and the gaps in income distribution are growing, and reform and development of public service departments are behind schedule and the supply of public goods is inadequate. Although there are a number of factors contributing to these issues and problems, all of them need to be solved through reform.

    General Secretary Hu Jintao in his report to the Seventeenth National Congress of the CPC pointed out that, “As a great new revolution, reform and opening up are not to be plain sailing or be accomplished overnight. Essentially they accord with the aspirations of the Party membership and the people and keep up with the trend of the times. The orientation and path of reform and opening up are entirely correct, and their merits and achievements can never be negated. To stop or reverse reform and opening up would only lead to a blind alley.” This is a clear-cut reply from the CPC Central Committee to the debate going on in recent years over the accomplishments and faults of the reforms in China. In addition, he also emphatically pointed out that “The decision to begin reform and opening up is vital to the destiny of contemporary China, that reform and opening up are the only way for developing socialism with Chinese characteristics and rejuvenating the Chinese nation, that only socialism can save China and that only reform and opening up can develop China, socialism and Marxism.” He added, “We need to incorporate the spirit of reform and innovation into all links of governance.” During this new period of history, the Chinese people have strengthened their resolve to promote reform in spite of complex and intricate new situations and issues.

    China’s socialist market economic system has already begun to take shape, but breakthroughs still must be made in carrying out reform to address many deep-rooted issues in economic areas. Market-oriented reforms must be carried out in an orderly manner in some key fields. Continuing and strengthening efforts to reform the economic structure to establish a more effective socialist market economic system is a major task we must tackle in this new period. We need to step up the scope of reforms in both breadth and depth with the objective of setting up a more efficient and mature socialist market economic system. We must have a more efficient and mature market system and structure as a basis in order to ensure that market forces can play their role in regulating the economy and promoting development and to ameliorate or resolve the many irregularities in the current market system and the friction between the new and old systems. This will also help bring under control the tendency to pursue pure economic growth and ever widening gap in the distribution of income between urban and rural areas and between different regions of the country.

    Letting the market regulate itself is not a good solution. The purpose of developing a socialist market economic system is to effectively use market forces to develop socialism. This makes it more necessary than ever for people to adopt a rational attitude in promoting the beneficial aspects and eliminating the harmful aspects of the introduction and utilization of the market. On the one hand, we must make good use of the positive functions of a modern market economy. On the other hand, we must work hard to make innovations in the system, overcome or reduce the defects and shortcomings of a market economy and avoid merely copying a Western model market system. China needs to make innovations in the following areas of the system: First, we need to make thoroughgoing innovations in the system of public ownership, to work out various forms of public ownership compatible with market forces. Second, we need to work hard to improve the macroeconomic regulatory system, work out effective tools for macroeconomic regulation so that “the invisible hand” and “visible hand” can supplement and compensate for each other. Third, we need to ensure freedom in economic activities subject to institutional restrictions through measures related to economic, administrative, social and moral systems. Fourth, we need to strengthen regulation of income and improve socialist distribution relationships to truly ensure fair wealth distribution. Finally, we need to improve the system responsible for development and supply of public facilities to improve people’s lives and improve the level of social welfare.


Note: / Liu Shibai is the Honorary President and Professor of Southwestern University of Finance and Economics in Chengdu, China

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