Lecture 17 How to understand China’s gradual reform to the market economy
and opening to the world market after 1978?
Last class, we used One-child policy as can case study to show the two major
problems of a state-planned economy.
First, no matter how competent the planners
are, they cannot anticipate many important changes in future, for example, China’s
opening to the world market after 1978 is perhaps the most important changes in the
past 30 years, yet it was not included in missile scientists’ calculation of optimal
Second, each individual in society is a person, an agent who has interest, emotion,
desire, and plan for his/her life, not just a tool to be planned by the government.
These should not be denied or ignored by the government.
Even from a pure practical
point of view, it is very difficult for a government to implement a policy which
contradicts the motivation of the majority of its people, unless the government uses
violence to impose unpopular policy.
But for the critics of one-child policy, if we ask them, what would have happened to
China if there were no mandatory one-child policy in 1980, it would be difficult for
them to answer.
It is almost impossible to know the effect of alterative policies, for
example, suppose the Chinese government in 1980 did not impose the one-child
policy in rural area, but to
spend the same amount of money to implement this policy
on improving the education of rural women.
For example, the government provided
money to help every girl in rural China to finish high school.
nobody can predict
the impact on birth rates when rural women became more educated.
This is one
difference between social science and natural science,
it is very difficult to do
controlled experiments in social science.
And it is impossible to re-run history.
comparison is often used as a proxy to controlled experiment.
For example, we
compare China with India, we may know something about the possible consequence
if China did not impose one-child policy in 1980, because India did not have such a
strict population control.
But the one-child policy is a very special policy making.
The main reason is that the
who had played crucial role in making this policy did not benefit
from this policy.
did not have much personal interests or stakes
involved in policy making.
And they were not bribed by any lobby group to advocate
The making of social or economic policies has big impact on interest distribution.
That means the same policy will affect the interest of different groups in different
We call this distributional effect of policy making.
For example, if a
government set high tariff duty on imported automobiles, domestic auto-producers
would benefit while auto-consumers will not.
This is the reason why interest
concerns of different social groups will try to find ways to influence the process of
This is a basic relationship between policy-making and interest concern in society.