China’s Escape from the “Big Bang”: The 1980s Price Reform Debate in Historical Perspective

Abstract

China’s rise and Russia’s fall shape today’s global political economy. This new great divergence originates from the different policies pursued in the transition from a command economy. Russia applied a ‘big-bang’ doctrine with rapid price liberalisation at its core. In contrast, a policy of experimentalist gradualism manifested in the dual track price system (DTPS) laid the foundations for China’s economic success. But the Chinese reform approach was highly contested in the 1980s and China came close to implementing a big bang. My dissertation sheds light on this critical crossroads by asking on what intellectual grounds China escaped a big bang in price reform; or to turn the question positively, on what intellectual grounds the DTPS was defended against the plans to implement a big bang. To derive an answer, the first part presents the broad historical and theoretical context of the 1980s Chinese price reform debate. In particular, I analyse the ancient Chinese tradition of price regulation, the US price control experience and controversies during and after the Second World War, and the Chinese Communists’ price policies in the Maoist period. Against this background, the second part conducts an in-depth study of the 1980s price reform debate drawing on more than 50 interviews with Chinese and foreign economists, previously unexplored archival evidence and a wealth of Chinese sources. I show that the DTPS emerged from bureaucratic practices and was justified by large-scale empirical research efforts conducted by young intellectuals, who had gained influence through their contribution to rural reform. In contrast, I find that the big bang reform approach was introduced to China by Eastern European émigré scholars and Western economists, and was promoted by a group of Chinese academic economists. I demonstrate how the DTPS was grounded in a pragmatic philosophy of economic policy-making deeply rooted in China’s bureaucratic tradition, which prevailed over the idealist stance underlying the panacea of a big bang.