Xi Jinping ??? (Photo credit: Wikipedia)
As Xi Jinping is expected to assume the Chinese Communist Party (CPC) leadership and become president of China this week, succeeding Hu Jintao, political economists cannot help but ask how the CPC still holds its grip on to a fast growing economy? How can the CCP combine and compromise the sharply opposing and contradictory premises of the two opposite systems of capitalism and communism?
By transforming itself from a grand proprietor to a grand landlord.
In its early days in power, and most notably during the ?Great Leap Forwards,? the CCP assumed the role of the proprietor, practically owning and managing every resource, including people, and the ?work unit,? the place where people worked and lived. As Nobel Prize winner Xin Xinjian graphically portrays in?A Man?s Journal:??The great and mighty nation, moreover, ranked below the Party and, needless to say, the place where persons worked, were paid, and ate their meals-the work unit-belonged to the Party.?
The CCP? role as a proprietor was performed within a Central Plan that allocated resources to ?work units,? State-Owned Enterprises (SOEs) and People Communes (PCs), appointing their management, and setting their goals and priorities, in essence turning them into welfare agencies rather than true enterprises.
As evidenced by the unrest and chaos that followed the Great Leap Forwards and the upheaval of the Cultural Revolution, the role of the grand proprietor proved far too formidable for one political organization to handle. SOEs? and PCs? management lacked the freedom, the incentives, and the expertise to allocate resources efficiently and effectively to alternative uses, as defined by central planners.
By the mid-1970s, the CPC faced the grim dilemma: Either follow the fate of its Soviet Union counterpart or assume a less formidable role that would allow it to loosen up its grip to the economic system, while maintaining its control over the political system.
The solution to this dilemma was the introduction of the ?the responsibility system,? whereby farmers were allowed to dissolve the PCs, divide up the land, and use it for their own benefit, provided that they pay rent to the local governments.
Beginning at the Xiaogang Village, this experiment quickly spread to free enterprise zones, and eventually around the country, turning the CPC from a proprietor to a landlord. CCP leased resources and most notably land to emerging capitalists, mostly its members, and let them manage these resources alone or in partnership with foreigners.
As evidenced by the country?s soaring economic growth, the CPC?s new role as a landlord proved far less formidable than that of proprietor. Whether used as farmland or as industrial land, tenants had the freedom and the incentives to put economic resources into better use, creating value for themselves and the economy at large.
The bottom line: A slight change in the direction of the march, a dose of decentralization and incentives introduced into a communist system unleashed people?s animal spirits for wealth creation.
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