From State Resource Allocation to A ‘Low Level Equilibrium Trap’: Re-thinking of Economic Performance of Mao’s China, 1949-78
41 Pages Posted: 8 Aug 2018 Last revised: 22 Oct 2018
Date Written: July 19, 2018
This paper provides a full picture of how Maoist economy actually performed. We argue that Mao’s China neither undertook a structural change towards industrialisation nor generated a sustainable growth from 1949 to 1978. With fatal shortcomings of a planned economic system imported from the Soviet Union – the ‘principle-agent’ problem and information asymmetry for the bureaucracy, and disincentives for producers – China’s economy remained not only deliberately unbalanced but also predominantly rural until the 1980s. More importantly, the Maoist economy was not designed to enrich and empower the masses in society. Instead, all key consumer goods including food, clothing and housing were strictly rationed. The material life of ordinary citizens in China saw no improvement. This paper aims to reveal the harsh reality of the Maoist economy with solid evidence and theoretical explanation.
Keywords: Maoist economy, structural change, disincentives, information asymmetry, price distortion, material life
JEL Classification: N00, N55, O40, O53
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