Explain why urban-industrialization in China during the central planning period deprived the rural sector

In 1949 following the Chinese Civil War, the country’s’ leadership was determined. The Guomindang (KMD) fled to Taiwan whilst the Communist Party of China (CPP) took power in Beijing. A new political and economic order modelled on the Soviet example was quickly installed; this was the birth of the central planning period.

The CPP leadership moved with haste and quickly began to involve themselves within some of the underlying crises, many existing as a result of the civil war. Their main concerns included low levels of gross domestic output, high rates of inflation, and high levels of urban unemployment. In order to sustain public confidence within the party, the CPP recognized that these problems would have to be tackled quickly and effectively.

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The economic relationships between urban areas and their rural counterparts (in LEDC economies) stem from the following; the terms of trade between the two sectors with regard to the exchange of commodities and manufactured products, the inter-sectoral transfer of both labour and savings, the relative wages of labour in the two sectors, the relative sectoral contributions to tax revenue and benefits accrued from public expenditure, and finally the extent to which government policies benefit one sector disproportionately more than the other. Knight and Song (1999) identified at least three theoretical frameworks for the analysis of these relationships;

1) the Lewis model of economic growth with surplus rural labour

2) the ‘coercive’ or ‘price scissors’ model of economic growth financed by extracting a rural surplus

3) the notion that economic policy is subject to urban bias

The Lewis model is a structural change model that describes how labour is transferred in an economy with dualistic characteristics. Arthur Lewis advocated to the concept that economic growth is driven primarily via the industrial sector.

The Lewis model states that economic growth requires structural change in the economy whereby the surplus workers who exercise a low or zero marginal product of labour are allowed and encouraged to migrate to the modern industrial sector where the marginal product of labour is high and rising. This is to say that each additional worker adds more value in the industrial sector than he would have had had he remained in agriculture in rural china. The Chinese government endorsed Lewis’s concept and the resulting migration was so extensive that the government was later forced to retaliate in the form of migration controls and the Hukou system, in order to prevent and limit increasing urban unemployment and the drawbacks that ensue from this, something that I will discuss in greater depth later.

Migration allows output to increase and with this wages begin to rise, prompting a sharp increase in the standards of living.

As the supply curve of labour becomes more inelastic due to an improved rural marginal product of labour, relative agricultural prices begin to rise ultimately resulting in an improvement of the rural urban terms of trade. This is obviously just a model; however, the events described above were mirrored to an extent in 1950’s china.

The price scissors model helps to explain how the government; by artificially influencing the terms of trade are able to generate a surplus which can be invested in the urban industrial sector. The government, through the means of, state monopolization and monopsonization are able to control the prices of agricultural commodities. The Chinese state relied upon coercion rather than incentives to secure the harvest. Mao endorsed compulsory procurement of peasant output at low prices, and it enforced collectivisation to attain greater control over the surplus. ‘The compulsory procurement of food reduces the welfare of rural people but makes possible the extraction of an investible surplus without necessarily reducing urban welfare.1’ The price scissors policy kept down agricultural prices in relation to industrial prices allowing lower industrial wages and higher surpluses in the state-owned industrial sector.

Urban bias theory tries to explain why the state is more inclined to respond to urban needs over rural ones. Although the urban population tends to compromise a minority of the population of less economically developed countries; ‘urban dwellers exercise an influence on government policy which is disproportionate to their numbers’2

This is because of many reasons. The urban population are more politically aware and benefit from better information owing to a better infrastructure. The urban population also have a greater opportunity to vote and will also tend to agree with government policy, the ‘iron rice bowl’ for example provided secure jobs giving urban dwellers an increased incentive to vote. Urban bias promotes a better standard of living in the cities relative to the countryside.

In 1950 officially defined ‘poor peasants’ accounted for 52% of the population, yet they only owned 14% of the land, whereas the landlords and ‘rich peasants’ who accounted for just 9% of the population had in their possession 52% of the land, this large inequality meant that the wealthy 9% were able to keep the majority; the poor peasants, in a state of deprivation and the structure of the system pre-Mao meant that the poor were trapped in this state of poverty with no means of escaping.

Through the progressive socialization of Chinese agriculture (making ownership of land collective, not individual or family), the landowning elite was eliminated, and the source of its income and influence abolished; ‘Simply eliminating the feudal lords and those dependent upon them freed up an enormous amount of resources that could be put to better use from the standpoint of overall social investment and future productive potential’.3

As the CCP took control of new areas, it taught the peasants in those areas that social and economic inequalities were not natural but rather a perversion caused by the institution of private property. Wealthy landowners were not people of high moral standards but were exploiters.

The rural population began to trust Mao and his policies little did they know that the improved living standards would be short-lived and that Mao would begin to exploit them so that capital could be accumulated more rapidly for urban-industrialization, ‘In the era of centralized planning, the primary economic objective of the Chinese government was rapid industrialization, and the emphasis was placed on state owned heavy industry located in cities.4′

In 1952 state purchasing stations were introduced. There was inefficiency in the agricultural sector in the effective rationing of many food stuffs i.e. demand exceeded supply. The government attempted to resolve this contradiction between low food prices needed for accumulation and the higher prices needed for food production by combination of compulsory purchases from producers and rationing of consumers.

This was significant because it rectified two immediate problems; the need to support rural farmers and the ability to provide relatively cheap food for workers in the cities. By taking control over the marketing of these key foodstuffs such as grain the government realized the means by which they could directly control the pricing and allocation of key commodities. Since the government had total control of the market forces the possibility of the reoccurrence of price inflation was eliminated. This arrangement, however, wasn’t always to the benefit or rural producers. The state was able to dictate prices directly to consumers, twin this with the states monopsony power over the sale of key inputs to rural producers and we can begin to visualize how the government were able to influence prices and quantities such that any surplus could be used for urban industrialization and/or urban wage subsidization at the expense of rural producers. The state set purchase prices too low and sold crucial inputs to the farmers at prices which were too high creating what I described previously as the price scissors effect.

In the 1950’s The Hukou or household registration system was also established. The system categorized citizens’ dependant upon two factors; place of residence and eligibility for certain socioeconomic benefits (the latter via designation as either “agricultural” or “non-agricultural” residents). Parents passed their Hukou status to their children; solidifying these administrative categories into inheritable social identities. The Hukou system initially had three main objectives: resource distribution, migration control, and the monitoring of targeted groups of people. To guarantee the economic livelihood and political loyalty of China’s industrial workers, the Chinese government provided non-agricultural Hukou holders with food rations and grain subsidies and granted non-agricultural and urban residents greater employment opportunities, subsidized housing, free education, medical care, and old-age pensions.

Regulations disadvantaged the rural population in two ways. Firstly, they prohibited rural residents from obtaining many public services their urban counterparts received, and secondly they forced agricultural Hukou holders to sell their agricultural products at a discounted rate to the government, as a means of financing national development plans (see price-scissors policy). “Urban dwellers enjoy a range of social, economic and cultural benefits while peasants, the majority of the Chinese population, are treated as second-class citizens.5 The Hukou system also imposed strict controls on internal migration. Rural residents who wished to permanently move to an urban area had to separately apply to change both their place of permanent residence and their agricultural status. These limits effectively blocked upward social mobility for most rural citizens; thus locking them into a state of relative poverty, with no feasible, or for that matter, lawful means of escaping to the prosperous urban areas; ‘urban workers occupied a privileged position in Chinese society, enjoying higher income greater security, and better social services than did the rural peasants’6.

By the 1970s, the system became so rigid that peasants could be arrested just for entering cities. ‘The Hukou system of household registration has for decades discriminated against the nation’s 800 million rural inhabitants, by depriving them of most of the rights enjoyed by those born in urban areas.7’

This FFYEP was implemented in 1953 and was based on the soviet model; its main objective was a high rate of economic growth, with primary emphasis on industrial advance at the expense of agriculture. In order to fund Mao’s superpower programme, China exported basic commodities; such as rice and soy beans to Russia. Despite this Mao told his people that it was Soviet aid which was bankrolling the urban- industrialisation. Chou (Mao’s right-hand man), however described trade with Russia as ‘selling agricultural products to buy machines’. What China was exporting to Russia (and its satellites) consisted predominantly of items that were basic essentials for its own people and included all of the main products from which the population derived its protein.

Owing to the fact that china only accounts for 7% of the world’s arable land and yet it accommodates 22% of the world’s population, land was too precious to raise livestock. As a result the majority of the country could only obtain protein via soy beans, etc. Even though Chinas grain production was terribly inadequate and that china had traditionally been a large importer of grain, it was still astonishingly on Mao’s export list. Mao was ready to deprive people of food so that he could export it. The Urban population were guaranteed basic food through a strict rationing system whereas the rural peasants were forced to survive on what ever they were given.

Chou, whilst discussing the export of more soy beans told his East German interlocutors that ‘if people starve here it will be in the countryside not in the cities, the way it is with you’. In other words: our starving won’t be seen. Food wasn’t only being exchanged for military imports and other industrialization aids, it was also being ‘given away’. ‘The peasants were having to surrender precious produce to make up the massive donations Mao was dispensing to boost his turf aspirations.’8 China provided food to not only the poor countries such as North Korea and North Vietnam but also to much richer European Communist regimes. It was thanks to Chinese food that East Germany was able to lift food rationing in May 1958.

Under Mao foreign aid reached 6.92%, when we compare this to the United States who at the turn of the millennium donated 0.01% of GDP it becomes increasingly evident how unreasonably generous Mao was during the central planning period at the expense of others; primarily the rural population. Mao was well aware of the suffering his urban-industrialization would cause; on 21st April 1953, on the eve of launching the superpower programme he noted on a report: ‘about 10 per cent of agricultural households are going to suffer food scarcity in spring and summer…even out of food altogether.’

From Autumn 1953, nationwide rationing was implemented, in order to extract more food to pay for the super power programme. The population were given just enough to survive and the rest was exported, ‘just enough’ equated to 200Kg of processed grain a year and this was called ‘basic food’. 200Kg was rarely realized especially in rural areas. Mao wanted the rural peasants to have far less than this. They ‘only need 140kg of grain and some only need 110kg’, he declared. 110kg is barely half the amount needed for mere subsistence. Rural peasants began to suffer immensely, yet still Mao tried to ‘squeeze’ more out of them; ‘educate peasants to eat less, and have more thin gruel’, he instructed. ‘The state should try its hardest… to prevent peasants eating too much’.

Most of the food the peasants produced was taken away often in a violent fashion if peasants in anyway revolted. By early 1955, requisitioning (compulsory food confiscation) had bought utter misery. It was commonplace for peasants to eat tree bark, and abandon babies due to the lack of food. Cadres would search houses, tie peasants up and beat them to force them to surrender food. In one not atypical county; Gaoyao, 110 people were driven to suicide. If this figure is extrapolated to China’s 2,000-plus counties the number of suicides in rural areas in this short period would be approaching a quarter of a million.

Mao turned the screw even tighter from mid-1955 by forcing the entire countryside into collective farms. Firstly mutual aid teams, usually consisting of less than 10 families, were established these involved the sharing of tools and the exchange of labour. Next, they were instructed to set up cooperatives, consisting of 40 or 50 families, these cooperatives encouraged a greater level of pooled resources and unified management. From 1954 to 1956 the Communists created higher-level collectives (also called production teams) that united cooperatives. ‘The collectivisation process began slowly but accelerated in 1955 and 1956. In 1957 about 93.5 percent of all farm households had joined advanced producers’ cooperatives’9. Collectivization made it easier to enforce requisitioning; the whole harvest went from the field to the state giving the peasants no opportunity to stockpile anything that they had grown.

The other advantage from Mao’s point of view was that collectivization made it much easier to keep the peasants under surveillance whilst they were working. With collectivization came slave driving. At this point, economic inequality within villages had been virtually eliminated. The state had complete control of the grain market, and as mentioned above peasants were no longer allowed to market their crops. ”Procurement planning’ in agriculture, introduced in the 1950s, required the peasants to deliver target supplies of food to the state at prices determined by the state. ‘The establishment of the communes can be seen, inter alia, as an institutional response to the need to force these deliveries.10’ The greater efficiency gains realised through these cooperatives was substantial; agricultural production grew in real terms by 25% and grain production by 19% between 1952 and 1957. ‘The apparent success of collectivisation and the need to extract more agricultural surplus for industrialization emboldened the leadership to establish people’s communes.’

In the summer of 1958 at the dawn of the Great leap, Mao coerced the entire rural population into new and larger units; the peoples communes. Basically people were forced to surrender everything they owned to the state sometimes even their name as Mao toyed with the idea of replacing names with numbers, many were also forced to leave their homes and live in overcrowded dormitories and canteens increasing the incidence of disease. Whilst away from their homes, many collapsed from neglect and others were torn down to make fertilizer or to feed back yard steel furnaces. When Mao reluctantly abandoned the canteen/dormitory arrangement many had no home to return to.

In January 1956 to correspond with the Twelve Year Nuclear Plan Mao drafted a twelve year plan for agriculture, which was in affect a scheme to extract much more food to fund the development of ‘The Bomb’. The plan ordered peasants to produce the equivalent of 500 billion kg per annum over the twelve years, more than triple the highest-ever previous annual output (1936) in addition this tall order had to be achieved with virtually no investment, not even fertilizer. The development of the Bomb also consumed copious amounts of vital grain, grain that was needed to keep the population alive.

The great leap forward was initiated in May 1958 with the intention of promoting the nation into the forefront of economic development within a very short space of time. Mao had visions of china becoming a leading industrial power and to realize this vision he and his colleagues pushed for the construction of steal plants across the country. In 1957 Mao proclaimed that China would overtake British levels of steel production within 15 years, a year later Mao revised this target such that steel production must be greater than that of Britain’s within just three years. In addition to this further unfeasible targets with regard to commodity production etc. began to emerge.

People were mobilized to accomplish the goals of industrialization, and fierce competition began to arise between local leaders over steel and iron output. This meant that agricultural tasks were frequently neglected and put aside in favour of concentrating efforts on increasing steel and iron output and receiving recognition from Beijing. Due to the neglect many grain crops were left to rot in the fields.

‘In the frenzy of competition, the leaders over-reported their harvests to their superiors in Beijing, and what was thought to be surplus grain was sold abroad. Although in theory the country was awash in grain, in reality it was not. Rural communal mess halls were encouraged to supply food for free, but by the spring of 1959, the grain reserves were exhausted and the famine had begun’12.

In September, the Peoples Daily (Chinese newspaper) reported that the ‘biggest rice sputnik’ yet had produced over 70 tons from less than a 1/5th of an acre, which was hundreds of times the norm. The sputnik field was faked by an ambitious new county boss in Guangxi. At the end of the year, his county reported a grain output that was over three times the true figure. Such over-reporting was commonplace, and as a result more and more food was being exported, leaving the Chinese population especially the rural population with less and less to survive on and as a result many didn’t survive.

No one is exactly sure how many people lost their lives during the great leap famine; however, estimates vary from 16.5 million to 40 million, figures which make the great leap famine the largest in history. ‘Estimated 30 million peasants died (5.5% of the rural population) as a result of famine’13.

Many of those who perished were rural dwellers, offering us further evidence of the deprival effects of Maoist policy in rural china.

People unable to search for food due to the rigid Hukou system began to resort to horrific alternatives, most notably cannibalism. Fengyang county in the Anhui province recorded 63 cases of cannibalism in spring of 1960 alone. ‘Despite Mao’s lifelong dedication to peasant interests, the government eventually became all but deaf to peasant complaints of deprivation’14

Not only did rural china bare the brunt of the famine they also faced the terrible aftermath.

Mao’s quest for power and world dominance brought widespread suffering and deprivation to the whole of rural China, many were driven to suicide and others forced to murder their children because food was so scarce. Food was scarce because of Mao’s selfish and narrow-minded policies. His pursuit of rapid urban-industrialisation culminated in being purely one of military prowess, his dream of making China a superpower under his reign was never realized and millions of people died as a result.

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