Chapter 10: Bureaucratization, Property Rights and Economic Reforms
* BACKGROUND: THE NECESSARY EVIL Central planning as transplanted in China from the Soviet Union must in the ﬁrst place be seen as a vehicle for implementing the Stalinist strategy for accelerating industrialization. In a nutshell, the strategy focuses on the preferential development of heavy industry. It clearly implies exhaustive resources concentration, centralized allocation, persistent income and consumption squeezes, forced savings, and pervasive oﬃcial price ﬁxing. These all call for the establishment of a huge, coercive bureaucratic apparatus to facilitate control and arbitration. The entire bureaucratic mechanism also forcefully renders, ipso facto, any system of private property rights inoperative. Thus, nationalization of industry and commerce, as well the banking and ﬁnancial sectors, followed in tandem the inception of central planning in 1953. Agriculture was then also swiftly collectivized, and compulsory farm delivery quotas imposed, in order to bring the sector (together with the entire Chinese peasantry) into the orbit of centralized allocation and bureaucratic control. If anything, the degree of bureaucratization in China should be much greater than anywhere else in the Soviet bloc, given the sheer size of the country in terms of both population and geographical coverage. Enormous ‘transaction costs’ are clearly involved to help hold the entire fabric together. These include not only direct outlay as salary for the bureaucrats and on necessary physical administrative overheads, but also wastes associated with bureaucratic inertia and abuse, operational ineﬃciency, disincentives and misallocation in economic terms. Taken together, however, the entire bureaucratic set-up undoubtedly represents a necessary evil. Compared...
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