China: Ruined by Socialism, Saved by Capitalism
China's impressive poverty reduction came from freeing the people, not enslaving them.
In the last 200 years, the share of the global population living in extreme poverty has decreased from 75% to 10%. Accompanying this decline, there have been significant improvements in health, education, and peace. Factors such as the rise of private property, the social division of labor, advancements in technology, and the spread of philosophies advocating freedom have collectively transformed the world for the better. However, while most of the world has experienced these improvements, China stands out as a country that has seen especially remarkable progress.
When presented with overwhelming evidence of capitalism's successes, some critics of capitalism, including anti-capitalists, often cite China's economic development as a counterargument. For instance, in a YouTube video produced by the Gravel Institute, Marxist economist Richard Wolff attributes China's emergence from poverty to “socialism” rather than capitalism. Although China remains under Communist Party rule and has experienced significant socialist influences throughout its history, the pivotal reforms that catalyzed the nation's dramatic economic growth are widely recognized as market-oriented. Wolff's argument appears post hoc, especially when considering historical Marxist rhetoric regarding China's economic transformation. For example, Michael Parenti in 1997 characterized China's shift as “sliding down the free-market path.1
China under socialism
The Communist takeover of China in 1949 marked a tumultuous period. Anyone or anything considered "counter-revolutionary" faced swift and severe consequences. According to historian Jean-Louis Margolin,
Executions in the cities almost certainly reached 1 million, that is, one-third of the probable number of liquidations in the countryside. But since at least five times as many people lived in the country as lived in the city, we can assume that the repressions were harsher in urban areas.2
The impact of these actions was profound, resulting in millions being imprisoned and hundreds of thousands committing suicide. During the land reform initiatives of the early 1950s, between 200 and 240 million acres of land were redistributed.3 The Great Leap Forward further intensified these efforts. The establishment of the first commune in Henan Province's Suiping County at Yashan saw over 9,000 households relinquishing not only their private plots but also their homes and numerous other possessions. So much for the supposed Marxist distinction between personal and private property. Many homes were even dismantled to build communal buildings.4
But all of that was nothing compared to The Great Famine. Calculations vary, but some say up to 45 million perished.5 Many factors contributed to the famine. These include collectivization, Lysenkoism, the killing of the sparrows, and centrally planned production quotas. Mao did not seem to care much. He continued to seize food from starving peasants and every step of the way he exacerbated the famine.6 Had he changed his policy Professor Felix Wemheuer estimates he could’ve saved up to 26 million lives.7
A turn for the better
Economist Steven Radelet granted Mao the highest compliment he deserved by pointing out,
In 1976 Mao single-handedly and dramatically changed the direction of global poverty with one simple act: he died.8
Economist Martin Ravallion, a world-class expert on poverty, estimated that two-thirds of China’s poverty in 1980 was a direct result of Mao’s policies since 1950.9 Two-thirds of peasants in 1978 had an income lower than they did in the 1950s.10 These facts completely undermine any argument by leftists that socialism brought China out of poverty. On the contrary, socialism further impoverished China. But is that a surprise to any of us?
The nation started taking a turn thanks to the effort and ingenuity of a few farmers in Xiaogang. It was 1978 and China was grappling with the aftermath of Mao's Cultural Revolution and facing severe food shortages. Eighteen families in Xiaogang village, clandestinely signed a pact to divide commune land into family plots. This bold move, risking death or imprisonment, marked the onset of China's rural reform. The experiment's success boosted regional production by 600%. This caught the attention of Deng Xiaoping, China's then-new leader, who saw an opportunity to reform the nation’s economy. Embracing the Xiaogang model, Deng introduced the Household Contract Responsibility System, empowering families to manage their land while contributing a portion to the state. This system not only revitalized agriculture but also laid the groundwork for broader economic reforms, including the opening of Shanghai, Guangdong, and Shenzhen to market forces.11
As noted by socialist economist Thomas Piketty, from 1978 to 2015, the income share of the top 10% rose from 27% to 41%, while public property's share in national wealth declined from 70% to 30%.12 Concurrently, the public sector's share in production fell from 80.7% in 1978 to 28.2% in 1999, as the private sector's share increased from 19.3% to 71.8%.13 Additionally, from 1978 to 2002, urban employment saw a dramatic shift; the public sector's share dropped from 78.3% to 22.7%, whereas the private sector's rose from 21.7% to 77.3%,14 marking a substantial move towards a market-oriented economy with diversified ownership.
Private property had finally returned, and economic calculation with it. In 1920, Ludwig von Mises observed that socialist economies were incapable of performing economic calculation.15 In a capitalist economy, capital goods are privately owned and entrepreneurs sell them to each other, creating a market. Socialism abolishes private property and thus this market of capital goods cannot exist. Joe Salerno explains,
Without recourse to calculating and comparing the benefits and costs of production using the structure of monetary prices determined at each moment on the market, the human mind is only capable of surveying, evaluating, and directing production processes whose scope is drastically restricted to the compass of the primitive household economy.16
This problem was very apparent in socialist China. In 1978, 100% of the prices of production goods were set by the state. At this time the poverty rate was over 90% and rising. By 2004, only 12.5% of prices were set by the state. The poverty rate was 22% and falling.17
Capitalist China?
So is China capitalist? Well, it’s a bit more complicated than that. Among its reforms, China established "special economic zones," which are characterized by economies that are more market-oriented than those in other parts of the country. Presently, China's economic landscape is highly diverse, varying significantly not only from province to province but also from city to city. In some areas, state-owned enterprises dominate, accompanied by high corporate tax rates, whereas other regions feature a minimal presence of state-owned enterprises and benefit from low corporate tax rates. Thus, China exhibits characteristics of both socialism and capitalism, with the specific mix depending on the geographic location.18
In a cross-regional analysis of China’s economy, economist Weiying Zhang notes,
“China’s high growth over the past 40 years has come from marketization, emerging and booming private sectors, as well as the technology accumulated by the West over three hundred years, not from the powerful government and the large state sector.”19
He compared different regions in China, which varied by economic policy. By breaking China up into regions he was able to see,
“on average, the more the market-oriented reform a province had done, the higher economic growth it had achieved”20
and,
“the provinces whose economies are more ‘privatized’ are likely to be more innovative.”21
Thus providing definitive proof that China’s relative success completely originated from capitalist reforms, despite its government’s socialist tendencies. China still has a long way to go, to be sure. But life for the average citizen in China is far better than it was under Mao. And it is certainly far better than it would have been had Mao’s policies lived beyond the 1970s.
Parenti, Michael. Blackshirts and Reds. City Lights Books, 1997, p. 35.
Courtois, Stéphane. The Black Book of Communism. Harvard University Press, 1999, p. 483.
Ho, Peter. Developmental Dilemmas. Routledge, 2005, p. 8.
Halliday, Jon, and Jung Chang. Mao: The Unknown Story. Random House, 2012, p. 529.
Meng, Xin, Nancy Qian, and Pierre Yared. “The Institutional Causes of China’s Great Famine, 1959–1961.” The Review of Economic Studies 82, no. 4 (April 20, 2015): 1568–1611.
Dikötter, Frank. Mao’s Great Famine. Bloomsbury Publishing USA, 2010, p. 133.
Wemheuer, Felix. Famine Politics in Maoist China and the Soviet Union. Yale University Press, 2014.
Radelet, Steven. The Great Surge. Simon and Schuster, 2016, p. 35.
Ravallion, Martin. “Poverty in China Since 1950: A Counterfactual Perspective.” SSRN Electronic Journal, 2021.
Coase, R., and N. Wang. How China Became Capitalist. Springer, 2016, p. 7.
Meyer, Michael. In Manchuria. Bloomsbury Publishing USA, 2015.
Piketty, Thomas, Li Yang, and Gabriel Zucman. “Capital Accumulation, Private Property, and Rising Inequality in China, 1978–2015.” American Economic Review 109, no. 7 (July 1, 2019): 2469–96.
Zhang, Weiying. The Logic of the Market, 2015, p. 191.
Ibid.
Economic Calculation in the Socialist Commonwealth. Ludwig von Mises Institute
Ibid, p. 50.
Zhang, Weiying. The Logic of the Market, 2015, p. 191.
Zhang, Weiying. “The China Model View Is Factually False.” Journal of Chinese Economic and Business Studies 17, no. 3 (July 3, 2019): 287–311.
Ibid.
Ibid.
Ibid.