The History of Communism – Part 4

The final collapse of the Russian economy and China’s survival by allowing some free market capitalism.

Continuing this essay series on the history of communism using Sean McMeekin’s To Overthrow the World: The Rise and Fall and Rise of Communism, this essay will explore the final collapse of the Russian economy and China’s continued survival only by means of allowing some free market capitalism to prop up its economic system.

As McMeekin writes, by 1970’s:

Soviet factories mostly produced junk—and not enough of it, either. While there had been gains during the early Brezhnev years in the production of foodstuffs, consumer durables, and appliances, Soviet refrigerators, sewing machines, and televisions lagged far behind Western “capitalist” standards in both quality and quantity. By the late 1970s, growth across the board, even in the food sector, had flatlined. Russians might still enjoy the proverbial “3 ruble vodka,” cheap rents, and state-subsidized utilities, but basic foodstuffs were now scarce. A “weekly shopping” basket in Moscow cost the wage equivalent of forty-two hours’ labor in 1979, nearly four times what it cost in Washington, DC. Far from surpassing the Americans in milk production, as Khrushchev had vowed to do in 1957, Soviet collective and state farms could barely produce enough to feed a growing population; dairy production actually declined between 1975 and 1980. Were it not for private plots, which Communist planners reluctantly tolerated, the country would have starved: despite taking up only 3 percent of the arable land, these supplied 25.3 percent of Soviet milk, 29 percent of meat, 30 percent of eggs, and 42 percent of fruits and berries. Meanwhile, in the increasingly critical sector of data processing and computing, which should have been a huge priority in a planned economy, the Soviets were so far behind the Americans by 1980 that comparison is basically impossible. Not until 1986 did the Soviets produce the first home computer (the “Agat”), which was ten times more expensive than contemporaneous IBM or Apple desktops, and for which no floppy disks were available … Well-traveled Soviet leaders like Chernyaev knew perfectly well how poorly the Soviet economy was performing … “We have fallen terribly behind capitalism,” Chernyaev observed after visiting Berlin and Frankfurt in November 1979, noting how far ahead of the Soviet Bloc countries the West Germans were in every possible measurement, despite Germany having been “wiped off the face of the earth” in the war. Wages and living standards in the FRG were vastly superior to those in the USSR, and yet somehow, Chernyaev marveled, “their workers have six weeks of vacation.” He described how “their ‘iron battalions of the proletariat’… [got] in their personal cars to drive to work in the morning and home in the evening.… Their roads are so well maintained that you can drive at 160km/h with a full cup in the car and not spill a drop.” The Communist countries, despite all the boasting about building socialism, had “no social or economic advantage to show.” … Gorbachev’s other bright idea was to improve product quality by establishing a central State Quality Control Committee (Gospriemka) in May 1986 to reject inferior consumer goods— which turned out to be most of them, with rejection rates as high as three- quarters in some regions. By the end of 1987, 6 billion rubles’ worth of consumer goods had been discarded as “scrap,” costing the state still more income. Shortages of milk, meat, and durables were so common that many urbanites carried a “by chance” bag around, in case something— anything— was available to buy. Meanwhile, Soviet fridges still did not work well— because, with guaranteed sales in a captive domestic market and no competition, state monopoly producers had no incentive to improve them. (Soviet assault rifles and warplanes sold on the international arms market, by contrast, had to work, or foreign customers would not buy them.) Because there was no real price discovery for domestically produced consumer goods and durables, quality failed to improve even after a frustrated Gorbachev decentralized decision- making to regional party bosses. Rather than investing in new plants, Communist managers preferred to use state funds to raise wages to appease angry workers, or simply stole them. A committed Communist with no grasp of market incentives, Gorbachev could only tilt at windmills like Don Quixote.

As McMeekin explains:

It is important to understand that, despite presiding over the ultimate demise of the USSR and Soviet Communism, Gorbachev did not set out to do these things. He had taken the reins of power at a tense moment in the Cold War, with Soviet casualties in Afghanistan mounting and Reagan’s SDI threatening to upend the delicate strategic doctrine of Mutually Assured Destruction (known by the apposite acronym MAD, the idea was that neither side would risk a first nuclear strike, as retaliation would ensure the other side’s obliteration). His main objective was thus to revitalize the Soviet economy in order to ramp up military spending. As he told Reagan at the Geneva summit in November 1985, referring to the missile shield that had become SDI’s main feature, “We will build up in order to smash your shield.” The watchword of the Soviet Twelfth Five-Year Plan, launched in 1986, was acceleration (uskoreniye). The goal of perestroika, as Gorbachev grandly renamed his economic reforms in 1987 (literally “reconstruction,” although at times he meant by it something like “new thinking”), was not economic liberalization for its own sake, but to facilitate rearmament. It was not an end to planning, but a drive to plan more efficiently—for example, by importing Western technology, especially computers, to bring Soviet factories up to date. Likewise, glasnost, or “openness,” a complementary policy Gorbachev announced after the devastating (and humiliating) Soviet nuclear accident at Chernobyl in April 1986, was not meant to abandon censorship and Communist control of the press, but to shine light on sectors of the economy performing badly.

Regarding China:

[T]he economy of the USSR’s main Communist competitor, the People’s Republic of China (PRC), was in even worse shape than the Soviet one. Whereas the USSR could boast of an improvement in material living standards under Brezhnev, by the time of Mao’s death in September 1976 China was poorer than before the Communist takeover in 1949. Per capita calorie consumption was lower than in 1933, although higher than in 1960, one of the worst famine years … Although production and consumption recovered a bit after 1970 as the Cultural Revolution petered out, and the opening of relations with the United States stimulated foreign trade, as late as 1985 there were only 20,000 passenger cars total in a country with a population of more than 1 billion. Meanwhile, the USSR was producing 1.3 million cars a year. The PRC was a poor country. China had one huge advantage over the USSR, however. Aside from the Korean War, which had ended in 1953, the occupation of tiny Tibet, a short border conflict with the Soviets in 1969, and relatively inexpensive subventions of Communist North Vietnam and “Democratic Kampuchea,” Beijing had avoided the costly global security commitments Moscow had assumed. Indeed, since Nixon had “opened” China, a process consummated in the formal establishment of diplomatic relations in 1978, the United States had been transformed from an enemy into a friendly strategic partner of sorts against the Soviets. These developments obviated the need for China to compete in the hugely expensive nuclear arms race, the space race—or the Olympics, for that matter (where the PRC was not allowed to represent China until 1980) … Like Khrushchev marveling at the productivity of the American corn belt, Deng [Xiaoping, the leader of China until 1997] was genuinely impressed with what he saw. “We thought capitalist countries were backward and decadent,” as a CCP colleague who traveled with him to Japan later recalled, but “when we left our country and took a look, we realized things were completely different.” Swallowing his pride, Deng admitted at a public meeting in Japan, “We [Chinese] are very poor. We are very backward. We have to recognize that. We have a lot to do, a long way to go and a lot to learn.” To catch up with the Japanese and Americans, Deng realized that Communist China would have to borrow—or buy, or copy—technology and ideas from them. With Communist naïveté, Deng initially thought he could just butter up the director of the leading Japanese electronics company, Matsushita Konosuke (whom he saluted as the “god of technology”), to come to China and teach trusted CCP managers and engineers how Panasonic built its world-class products, only to be informed by Matsushita that, in the capitalist world, profitable industrial processes and technologies were patented intellectual property, trade secrets that were preciously guarded … Deng’s goal was not, despite the gushing of his growing ranks of Western admirers, to unleash private enterprise, but to establish “special economic zones” (SEZs) to experiment with new techniques and encourage Japanese and Western capital investment … The first SEZs were in the coastal areas of Guangdong province near Hong Kong—a natural transit point for these exchanges, as so many wealthy Chinese émigrés lived there, many of them keen to resume contacts with family and friends on the mainland … Deng had introduced a new course in economic policy, a kind of Chinese version of Russia’s New Economic Policy (NEP) from the 1920s. In some ways Deng’s economic reforms also paralleled Gorbachev’s nearly concurrent perestroika in the USSR—for example, both recommended the decentralization of industrial decision-making and the use of imported technology. Deng’s reforms, however, were clearly more successful than Gorbachev’s. In part this was owing to the intensive level of Western, particularly Japanese, investment in Chinese industry, which took off in the years after 1982, and in part it reflected the brazen attitude of Chinese Communist managers toward Western copyright law. If Japanese and American firms would not share trade secrets, as Deng initially hoped, then, he concluded, there was no reason not to steal them. Chinese planning documents from the period, later uncovered by historians, reveal a systematic approach to industrial espionage, with the Panasonic facilities Deng had visited in Japan the first and highest-priority target (the Chinese replica was euphemistically named the “Yingkou Washing Machine Plant”) … Boldly, the Shanghai Committee on Computing opened an industrial espionage warehouse in San Francisco, in the heart of California’s Silicon Valley during the computer chip boom, an operation greased along by then mayor of San Francisco (and later senator from California) Dianne Feinstein. Feinstein embraced her “mayoral” counterpart from Shanghai, Jiang Zemin, a future CCP general secretary and future president of China, and declared Shanghai the “sister city” of San Francisco. Wining and dining CCP officials and engineers, in exchange she saw her husband Richard Blum given sweetheart concessions in China, including an 18 percent stake in the Shenzhen Development Bank—the first stake given to a Western “capitalist” by the CCP.24 Starting from such an abysmally low base, it was not hard to achieve head-turning growth rates on paper with these policies, such as a 15 percent increase in China’s gross domestic product (GDP) in 1984, or a reported increase in industrial output of 23.4 percent in the second quarter of 1985. In addition to the SEZs, in 1984 the CCP began allowing hybrid partnerships called “township and village enterprises,” or TVEs. By 1985 they employed 4.75 million people out of a nationwide total of 22 million “private employees.” It was in 1984 that Deng first used the phrase “socialism with Chinese characteristics,” a hint that the CCP was no longer beholden to Marxist dogmas about state ownership of all the means of production or to Soviet-style planning of the entire economy (rather than just most of it).

But China, unlike Russia, never made moves toward political liberalization. As McMeekin writes:

Unlike Gorbachev, however, who allowed glasnost to deepen to the point where Soviets were reading Solzhenitsyn’s Gulag Archipelago and other dissident literature on the Moscow Metro—and by 1989 voting in semi-democratic elections for a new Congress of People’s Deputies—Deng never made so much as a nod toward political liberalization. Along with economic reforms and foreign investment, the Deng era also brought with it ghastly innovations in statist repression—such as the “one-child policy,” inaugurated in January 1980, which decreed that couples could have no more than one child (or perhaps a second in some cases, if the first was a daughter—and if the parents applied to the state for permission). Babies born without CCP authorization might be allowed to live, but without rights of citizenship: barred from attending state schools and from getting jobs in state enterprises, essentially they had to be hidden from the authorities. The one-child policy led to thousands of gruesome coerced late-term abortions, many conducted as late as the eighth month of pregnancy. In one commune in east Guangdong, 316 out of 325 pregnancies in 1981 were thus “terminated.” In 1983 alone, Communist China reported, proudly, that state clinics had carried out 14.4 million abortions and 20.7 million sterilizations. For all the excitement in the Western business press about Deng’s economic “transformation” of China, the draconian one-child policy should have sounded a note of caution. The CCP had not surrendered an inch of its political authority. When China’s GDP growth began to slow after 1987, the CCP faced a political reckoning. Just as in the USSR at the same time, the combination of looser economic controls and a sharp rise in imported Western goods was fueling drastic inflation. China’s GDP still grew by a nominal 11.3 percent in 1988, but this was easily outpaced by an 18.8 percent rise in the consumer price index. In theory, the state still controlled food and consumer prices—which meant that ordinary Chinese people knew whom to blame when their bills went up. It did not help that the People’s Daily had gingerly announced, on August 19, 1988, that prices on food and many consumer goods would be gradually freed over the next five years, leading to a run on bank deposits and a wave of panic buying and hoarding of staples such as rice and soap—and, for those who could afford them, imported electronic devices and appliances. Store shelves were swept clean. Under mounting political pressure, Deng, now eighty-three years old and sensing that he was out of touch with the public mood, backtracked in December, restoring price controls in full on everything from foodstuffs to industrial inputs. To stanch public anger, he ordered factories to shift toward consumer production, redirecting steel and timber quotas from construction firms, for example, to factories making refrigerators and matches. All that this officious return to Communist central planning accomplished was confusion, along with retrenchment in heavy industry and declines in foreign investment. In 1989, even nominal growth leveled off to 4 percent, while inflation maintained its terrifying 18 percent clip. By March, at least 50 million laid-off factory workers were roaming the Chinese countryside looking for work. Numbers like this were a recipe for political turmoil, especially after news stories about liberalization in the USSR and its satellites began appearing in Beijing in the first half of 1989, fueling hopes among educated elites that China might follow a similar path.

Slow economic growth amidst a huge population combined to create massive unrest:

With eerie timing, the man presiding over what appeared to be the democratization of Soviet Communism arrived in Beijing for a summit with Deng on May 15, 1989. A wave of democratic protest, mostly on university campuses, had already been building in China since April 15, when the news broke of the death of Hu Yaobang, a former general secretary who had been forced to resign his position in 1987 because of the soft line he had taken during student protests the previous year … On April 18, demonstrators grew bold enough to picket CCP headquarters at Zhongnanhai, next to Beijing’s Forbidden City, shouting, “Long Live Democracy!” and “Down with the Communist Party!” On April 19, protesters tried to storm the gate, encouraged by others holding up streamers threatening to “Burn Zhongnanhai!” Whether or not Hu was really the democratic champion student protesters and liberal Chinese intellectuals made him out to be—after admitting his “errors” in January 1987, he had been allowed to stay on the Politburo, and he retained his seat until his death in April 1989—his death brought an outpouring of genuine grief. Hundreds of students laid wreaths in Tiananmen Square to honor him on April 21, many overheard shouting “We Want Democracy, We Want Freedom,” and “Down with the Communist Party.” By the time Gorbachev arrived on May 15, the crowds in Tiananmen Square had grown to 300,000, including, according to an alarmed CCP official, “workers, peasants, government functionaries, working staff of democratic parties, children from kindergartens and elementary schools, and officers and men of justice departments and even of the military academies.” On May 13, student leaders announced a hunger strike to capitalize on media attention they were receiving because of the summit. Even while the two “reformist” dictators were meeting to bury the hatchet in the Sino-Soviet split, hundreds of emaciated hunger strikers were being carried to hospitals. Western press photographers who had arrived to cover the summit captured the scene, and by May 18, the crowds in Tiananmen Square had mushroomed to 1.2 million, by Chinese secret police estimates. The throng was so immense that Gorbachev’s motorcade could not make it through the square to the Great Hall of the People where he was scheduled to meet the press for the official end of the summit.

The Chinese government violently suppressed the protests:

While Deng had thus far tolerated the metastasizing crowds in Tiananmen Square, so as not to sully the Gorbachev summit with ugly scenes of violent repression while the world press was watching, he had long wanted to throttle the protest. On May 13, the day the hunger strike began, Deng called in CCP general secretary Zhao Ziyang, who had begun to waver, just as Hu had in 1986. “The student slogans,” Zhao bravely informed the chairman, “all support the [Chinese Communist] Constitution; they favor democracy and oppose corruption. These demands are basically in line with what the Party and government advocate, so we cannot reject them out of hand.” Moreover, Zhao pointed out, “the number of demonstrators and supporters is enormous, and they include people from all parts of society.” Deng was having none of this. “We can’t be led around by the nose,” he admonished Zhao. The movement had “dragged on too long,” and “the senior comrades” were “getting worried.” They would “have to be decisive”: “I’ve said over and over that we need stability if we’re going to develop.” “These people,” Deng concluded, “want to overthrow our Party and state.” Once Gorbachev left, on the morning of May 19, 1989, Deng and his Politburo colleagues decided they could wait no longer. At 10:00 p.m. that evening, the CCP premier, Li Peng, announced that martial law would be imposed at 10:00 a.m. on May 20, and ordered 50,000 troops to surround Tiananmen Square. But the move came too late. Catching wind of the crackdown, a number of lorry drivers friendly to the protesters blocked the six main entrances to Beijing, allowing crowds to surge forth and surround army convoys, remonstrating with commanders to pause (and in some cases letting air out of truck tires if drivers refused to halt). Owing in part to the hesitation of at least one senior PLA officer, the commander of the Thirty-Eighth Army, Major General Xu Qinxian, who said he would not comply with a verbal order and demanded to see a written one instead from the People’s Liberation Army high command before he would fire on demonstrators, these tactics worked. Disgusted with this insubordination, Deng told Li that he feared “the soldiers’ hearts may not be steady,” and Li confessed he “had not expected that the troops would encounter such huge resistance.” Backing down, Li and Deng instructed the PLA to withdraw from the city center on May 22 (though the units remained poised outside Beijing). It did not help Deng’s cause that the Western media was still camped out in Beijing, cottoning on to what seemed to be an even bigger story than the Gorbachev summit. Western photographers and TV crews were on high alert, hoping to be able to capture the moment when the regime wavered in the face of such huge protests. Surely, most Western journalists thought, the CCP would not fire into the crowds with the whole world watching. On June 3, the first armed skirmishes were reported in central Beijing. Throngs of protesters surrounded military buses, smashed in windows, and started erecting barricades in the square. A confrontation took place outside CCP headquarters in Zhongnanhai, which led to multiple injuries on both sides. Whoever was responsible for breaking the uneasy truce, Deng and Li used this “counter-revolutionary riot” to justify a move they were planning anyway. Deng ordered PLA commanders to do “whatever was necessary” to restore order, dispersing the Tiananmen Square protest peacefully if possible—but authorized the use of force if they encountered serious resistance. Deng did warn the students about what was coming, broadcasting clear instructions over loudspeakers at 6:30 p.m. that the crowds must disperse and civilians should stay off the streets for their own safety. Over the night of Saturday, June 3–4, 1989, a long procession of tanks, armored vehicles, and PLA soldiers carrying assault rifles (including Soviet AK-47s) crashed into central Beijing. The Thirty-Eighth Army, its hesitating commander Xu Qinxian now replaced by officers willing to do Deng’s bidding, was the first to engage protesters, opening fire on civilians with AK-47s and tank-propelled gas canisters at a huge roundabout called Gongzhufen, or “Tomb of the Princess,” at around 11:15 p.m. At each successive intersection, the Thirty-Eighth Army felled civilians and bystanders, including some killed in their own kitchens or bedrooms by stray bullets. The first tanks burst into Tiananmen Square around midnight, unleashing hell on the protesters, although some of the tanks were set on fire, too. All night loudspeakers blared out warnings that protesters must go home, but the warnings did not convince the diehards, mostly students, and 3,000 of them stayed in the square to the bitter end … Sporadic violence continued throughout the day on Sunday, June 4, and Monday, June 5, some of which was caught on camera—including an indelible image of a man, holding two shopping bags, who stood bravely in a pedestrian crossing and forced a tank convoy to halt—before an uneasy peace fell upon Beijing. The butcher’s bill was substantial. At least 310 students and other protesters (as Li informed the US government), and possibly as many as 2,600 (according to an ABC reporter who compiled this estimate from Beijing hospitals and the Chinese Red Cross), or even 3,400 (according to the British ambassador, briefed by local sources), lay dead, and several thousand more had been wounded.35 Whatever the true casualty figures were in the Tiananmen Square massacre, the political verdict in China was clear and unambiguous. While economic reforms might or might not continue, democratic reform was off the table. Deng, no Gorbachev, had made certain of that. Communist rule in China would endure.

In the next essay in this series, we’ll explore the current state of communism in the world.