Gresham College Lectures

Markets and Marxism: USA, USSR and China

November 08, 2023 Gresham College
Gresham College Lectures
Markets and Marxism: USA, USSR and China
Show Notes Transcript

Different models of economic modernity competed during the Cold War.

Washington feared that the transition from colonial peasant societies would provide an opening for Marxists, as in Vietnam. But by 1989, the Soviet economic model was in crisis and attempts to create a market economy led to Putin’s kleptocracy. In China, the disaster of Mao’s Great Leap Forward was followed by successful transformation.

Why did the Soviet Union fail where China succeeded?

This lecture was recorded by Martin Daunton on 31 October 2023 at Barnard's Inn Hall, London

The transcript and downloadable versions of the lecture are available from the Gresham College website:

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In 1989, there were two major events which shaped the modern world. The first was the brutal suppression of protests in Tran Square on the 4th of June, 1989, and the reassertion of the authority of the Chinese Communist Party, Don Jing embarked on economic reform before the this, uh, event, but the party would remain in control to manage the transition to an economy with market features. Dunk called it socialism with Chinese characteristics. The result was unprecedented rates of economic growth and improvement in the welfare of many Chinese people. The second event was the fall of the Berlin Wall of the 9th of November, 1989. General Secretary Mikhail Gorbachev did not intervene in the same way as the Chinese authorities did. And in 1988, he made the decision that d thought was disastrous. He loosened the hold of the Communist party. Economic reform in the Soviet Union continued as shock therapy, a swift conversion from a planned to a market economy. The outcome, unlike in China, was falling standards of welfare for many Russians, for vast riches for others in what is called a kleptocracy. The distinction in the rates of growth and welfare is apparent in this table, which you'll see on screen now, the rapid catching up of China with, um, United States and the Russian Federation. In December, 1989, president Bush and Gorbachev met him Malta and announced the end of the Cold War, The American political scientist, Francis Fouke arm, a thought to use the title of his deeply misguided book of 1992, that this marked the end of history, the demise of the Soviet Union, he said, and I quote, meant not just the passing of a particular period of post-war history, but the end of history as such, that is the end point of man's ideological evolution and the universalization of Western liberal democracy as a final form of human government. Well, I thought that claim was absurd at the time, and it's become even more absurd as time has passed. But it seems at that moment that there was a triumph of democratic capitalism, which could not have been predicted even a few years earlier when the world was gripped in a battle between different economic and political systems and different visions of modernity, a clash between market economics on the one hand, and Marxism on the other, not only between the West and the Soviet Union, but also between different visions of Marxism in the Soviet Union and China. So I want to start off by asking what were the different approaches of the United States, the Soviet Union and China during the Cold War before that moment of seeming triumph? So I want to look at different visions of modernity. The United States, of course, oppose Marxism and hope to extend market capitalism in the third world. American thinking rested on the belief that traditional societies were inflexible, superstitious dominated by growing elites, lacking a powerful middle class, relying upon a simple economy with limited technology, and with a fatalistic subservience to nature. A modern society, on other hand, was defined as being like the United States, and in that vision, it was a society which is flexible and adaptable, welcoming, change, outward looking and rational with a complex economy based upon private ownership and enterprise, an advanced division of labor and a willingness to subjugate them in the natural world. Well, needs to say both those visions lacked deep insight into the two societies, but they shaped American policy to many influential figures in the United States. The greatest danger of communism taking over the world was at the point of transition from a traditional peasant society to modernity. That moment could be exploited by the communists. Above all, that was the claim of the Center for International Studies at the Massachusetts Institute of Technology, directed by a form of assistant director of the CIA and partly funded by the CIA. And the most important member of the center was, I'm afraid to say, an economic historian, Walt Rostow, who was there directing the attention of President Johnson to a battle in the Vietnam War. Rostow advised both presidents Kennedy and Johnson, his most famous book was The Stages of Economic Growth. With the subtitle, a Non-Communist Manifesto came out in 1960. It offered an alternative path to modernity from the Soviet Union and the Communist manifesto of Marx and Engels, the book generalized from a rather poor understanding of British economic history. Instead of stages of a movement from a feudal society with landed overstock, aristocrats to bourgeois capitalists, and then the dictatorship of the Ariat. And then finally, socialism, rosow said that there was instead a movement way through stages form propensities or preconditions for growth to what he called the takeoff into self-sustained growth during the British Industrial Revolution, the first one to happen. And that was caused by a rise in capital formation and a leading sector of the economy, which like a jet engine that was the metaphor, pushed the economy down a runway until it took off. It was not a story of aeration and exploitation of workers as in the communist manifesto, but rather a movement to the next stage maturity, and then finally, modern America and high mass consumption rather than in reservation, as Marx would have it. Now, in Roscoe's view, the dangerous stage was before the takeoff. And on the runway, you're taxiing, are you going to take off or not? Is traditional society going to be overcome before economic growth delivers welfare gains? In his words, he said, communism was not the way for the future. It is a disease of the transitional process. So two things followed with this analysis. The first was that the Americans had to encourage the takeoff into self-sustained growth to happen as quickly as possible, to boost that growth, to deny Moscow and Beijing there, as he called it, dangerous mystique of transforming underdeveloped countries. That meant, therefore giving economic aid to those countries until they achieve self-sustained growth. But the second thing to do, and this is what he's doing here as a hawk in the Vietnam War, is to have military intervention. Until the standard of living was improved by democratic capitalism, it was vital to contain communism by military action. So he and his brother Eugene, were both haws. Now you can imagine that the Soviet Union and the Chinese didn't see it exactly that way. They sought to influence the third world with different ideological assumptions. Let me just explain then what they are for the Soviet Union. And then China. The Soviet Union concentrated on a critique of capitalism rather than a critique of colonialism. Now, the Soviet Union was a rather unusual entity. It lacked a clearly defined geographical area or identity. It was a collection of republics, each republic having a titular nationality and some republics then having national minorities within autonomous areas. So Russia was only another republic. It was not the Soviet Union. And Russia itself had its own autonomous areas, such as for the Chechens, to then have a status, which, a dual status of being a patriotic Soviet citizen. Combined with your separate national identity. They also defined the Csst territorial expansion before the revolution as not being imperialistic and colonialistic, but rather about voluntary annexation to save Central Asia from British colonials. This view of history allowed the Soviets to argue in the Cold War. They were a non imperial power that accepted local cultures and identities. It allowed Khrushchev to define the Soviet Union as Eurasian multicultural and a successful model of how to overcome feudal rule in the third world. Khrushchev's aim was to export Soviet style modernity based upon large scale investment and economic planning in alliance with bourgeois nationalists like Theum of in Ghana or nasa here at the, uh, inauguration of the Aswan Dam on the Nile. Working then with these nationalists in building their, on their role in securing independence. Soviet involvement with people like NASA and Kuma usually relied on pragmatic assessment of the cost and benefits of trade. Less weight then was given to the ideology of anti-colonialism. The Chinese took a different line. Mao was more interested in revolutionary movements support for gorillas against colonialism. Unlike the Soviets, China appealed to the third world as a fellow victim of racism and imperialism. Mao looked, I'll make this point much clearer later on in the lecture, Mao looked to creative disorder within China, but he also used that strategy of disorder overseas through support for peasantry support for violence. Mao rejected peaceful transition by a national bourgeoisie as quote preposterous. Instead, he looked to insurgency. China could not afford to support Soviet style heavy industrialization to route to modernity, and any case it didn't do that at home. Instead, what you have are things like the support for the shining path in China. In, uh, Peru, it's true that the Soviets did on occasions themselves support insurgency, but only to counter the Chinese. As China itself descended into internal chaos in the culture of evolution, Beijing lost leverage with governments in the third world. And the continued appeal of Maoism was not to the leaders of the third world. It was to these people here, like the shining path of movement led by Maoist intellectuals, uh, appealing to, uh, the rural areas against both American and Soviet imperialism. So what I'm saying here then is that the global Cold War was a battle between different views of modernity and different economic systems. In the 1950s and sixties, it still seemed that the Soviet Union was a real threat to the United States. Some of us are old enough to remember Sputnik. It seemed as if the Soviet Union had won the space race, that it was a technologically advanced military power. Koff announced that he would overtake the United States as an industrial power within 15 years, and that claim was treated as serious in Washington in 1957. Mao aimed to overtake Britain at that point. Still the world's second largest economy within 15 years now, in that attempt to overtake the Soviet Union and Britain, within 15 years, the Soviet Union and China took different routes as they tried to catch up with a major capitalist economies in the Soviet Union. Marxism collapsed in the attempt to create markets in China. Markets remained but under the control of Marxists. And what I want to look at now is how that divergence took place. And I'll start with the Soviet Union, a movement that I call from command economy to kleptocracy. I'll start with Joseph Stalin. In 1929, he announced that was to be the year of a great breakthrough, a quote as you see on the screen. There, we are going full steam ahead to socialism along the road of industrialization, leaving behind our traditional Russian backwardness. We are becoming a country of metal, a country of the automobile, a country of the tractor. He would show that North American capitalism was not the future. Now the breakthrough involved a number of features. The first and tragically was the collectivization of agriculture designed to feed cities and release labor for heavy industrialization. In 19 28, 90 6% of the sewn area were still farmed by peasants. In 1940, it was under 10%. The labor that was released, that that would then be used for heavy industrialization. Like here at Magneta Gok, it was a machine building rather than consumer goods. Based upon industrial cities being built up from scratch, It was a highly centralized economy. Large plants specialized in particular products spread across all the republics. They would then, in like an interconnected supply chains, would pull those products together right across the whole of the Soviet Union was planned as one, the materials being allocated by planners rather than by Marcus. And price signals, output targets set by payment against the plan. Regardless of quality or whether anybody wanted the goods at all, the economy was also closed. International trade was limited by state trading without market prices. It relied largely upon barter one-to-one exchange with other countries insofar as there was any exchange. And finally, there was to be a new type of Soviet citizen who would express patriotic re revolutionary duty in working hard for the advancement of the Soviet Union. That was the 1930s obviously. Then we have the disruption of the, of the war. At the end of the war, after 1945, Soviet production rebounded, but with certain characteristics. The economy was militarized with even tighter centralized control. With the use of forced labor and with closed towns in which research was carried out. The whole system relied upon very tight political authority for the function of the command economy. If that authority was weakened, it would very difficult to maintain even the limited efficiency which was achieved. Now, this command economy did not work as theory predicted. It didn't necessarily remove wasteful competitions and, and meet needs in a rational way. By the final decades of the Soviet Union, it was facing serious problems. By the time Gorbachev came to par, first of all, planners didn't know what the preferences of consumers were. The only close link between producers and consumers was for the military and a space race. It didn't work in the kitchen debate where, uh, this seems that the Soviet Union was not supplying the goods that were there being shown by, uh, vice President Nixon managers had little incentive to be efficient because success rested upon meeting a target, not upon the quality or profitability of the goods. Repression and restriction of the lives of workers meant they had little motivation. Now they did. The workers did. The managers have much motivation. Workers though were heavily dependent upon the factory for housing, healthcare, access to scarce goods workers, colluded with managers, workers were absentees. They were alcoholic. They were producing poor work quality, but the managers ignored that on condition. They turned up at the end of the planning cycle to what was called storm, to meet the target managers. Stockpile materials, employ more work as they were necessary to meet that target. As the clock was ticking towards the end of the year, the weakness of the official economy to supply consumer goods and inputs meant that there was an informal economy ranging from a few goods pilfered by workers to large scale corruption. State factories employed agents to swap goods unofficially outside the planning system. Individuals exchange goods and favors, such as access to medical care or to education. This system relied upon reciprocity and trust. In other words, it was outside planning, but not a market economy. And that system was very close to collapse. When Gorbachev became general secretary in 1985, he tried to introduce reforms ika. It didn't work. So what was he attempting to do? Why didn't it work? Well, first of all, he thought that if only he could use modern computers that would make planning work. It didn't, it made it work, work even worse. Secondly, he thought he could lower subsidies to state enterprises, and they would then make money by selling goods above the production target in the market. But there was no market, and the managers had no experience in setting prices of ensuring that labor produced goods of sufficient quality. He also thought he would have wage reform to overturn those informal understandings. I mentioned. He increased wage differentials. He changed grading of workers. He often meant downgrading. He attacked alcoholism in return for promise of a higher standard of living and political liberalization. The result of that was simply to overturn established ways of life and deals between managers and workers. Disrupt that, but with continued shortage of consumer goods, inflation, discontent, the same time a fall in export earnings from oil, the cost of the war in Afghanistan, the arms, the race with the United States, and the Chernobyl nuclear disaster of 1986 put the economy under pressure. State finances were collapsing. There were high levels of illicit alcohol consumption demands for higher wages. A failure of coordination between enterprises. The old system of planning and favors was collapsing without a market economy to replace it. So what did Gorbachev do? In 1988, he decided to end the Communist party's monopoly of power to try and secure popular support for reform. A third of the seats in the Congress of people's deputies was reserved for the communists. The rest opened a competition. The result was not as he expected. The elections of March, 1989 led to criticism both by the communists in their third of their seats for giving away power. And by liberal reformers, the republics, particularly the Baltic and Ukraine, became separatists. They voted for independence. The remaining republics like Russia saw the writing on the wall. They stopped paying taxes to the Soviet Union. Supply chains across the whole of the Soviet Union I talked about were ruptured. So the severe hardship, which led to the attempted coup, uh, in Moscow in February, 1990, sorry, in August, 1991. Beg your pardon, demonstrations. And then attempted coup. In August, 1991, the rise of Boris Yeltsin as president of Russia. Essentially, Russia had defeated the Soviet Union, which was dissolved in 1991, a replaced with a loose confederation of independent states. Yeltsin proceeded with economic reform, and he worked with this man, uh, Caar as the finance minister, economic minister who embarked on shock therapy. He said what was needed was a swift translation to a market economy. And he later explained the strategy as you see on the board there, there wasn't much choice. You had to overturn it straight away. You couldn't go for dual track approach of a planned economy and a market economy, of a command economy and a market economy. There had to be a sudden and complete switch from one to the other. And in doing that, GAAR and the market reformers worked with the IMF and the World Bank at the time when they were committed deeply to market and financial liberalization. They were recommending when their, uh, the, uh, the head of the IMF went to Moscow in 1990, spending cuts, tax increases, price liberalization, privatization. It wasn't necessarily just an outside improvisation because Gaar himself wanted that. He realized that was the only way politically of stopping the old guard, taking back power. But it's also a very politically risky process of privatization. State enterprises had a range of different stakeholders within them. Workers had the social welfare. As I said, managers saw the plants as their own. Local government needed the revenue from them. The citizens as a whole had the claim to ownership. So Gaar opted to give all the citizens of the Soviet Union of Russia vouchers those vouchers, privatization vouchers could be exchanged for shares in privatized state companies. They were tradable. Of course, most citizens didn't understand how they worked. They were bought up by financially aware Russians who took control of state enterprises and made huge profits the basis of the oligarchs. Meanwhile, ordinary Russians suffered from a loss of welfare, higher taxes, lower food subsidies, and it was also a failure to stabilize the currency, which led to hyperinflation of over 1000%. By the end of 1992. Yeltsin then ditched Gaar because he needed support from businesses in the, uh, elections, which are coming up in 1996. So Gaar was replaced by the head of GA prom, and he embarked on further privatization in the form of loans for shares. So banks and other financial institutions would make loans to the state. And if the state didn't repay them, by the end of September, 1996, the creditors took over the control of the companies. Well, you can imagine the loans were made by banks, controlled by the oligarchs, who then managed to get hold of the share of the companies on which they had given the loans. So this is where you get the capture economy or an oligarchic kleptocracy. The state lost from plundering by these oligarchs. The citizens lost welfare. The gross domestic product fell by a third in the early 1990s. Unemployment went up to 22% by 1998. And male life expectancy fell from 64 in 1991 to 57 in 1994. So it was not altogether, um, a successful, um, outcome. The IMF got a lot of the blame as for being, coming from outside and doing the wish of the of the West, it was ease to blame the outsiders. Of course, the IMF was not above blame, but an awful lot of it relied upon internal forces, political forces, uh, which are I'm talking, talking about. And that takes his course through to, uh, 1998 financial crisis. And in 2000, the new president of Russia, Vladimir Putin, who was welcomed to replace the chaos of Yeltsin's government. He seemed to be engaging with the G eight of major economies, hopes that Russia would join a liberal global order. But as we now know, that was false. Putin turned to Russian nationalism to roll back the collapse of the Soviet Union, the independence of Ukraine in 1991. He took back control over some private companies like Ucos Oil and state companies, like G Prom gave him large profits for the state and for his own personal benefit, Russia was becoming more and more dependent upon oil and gas revenue, which is over 50% of state revenues. In 2014, Putin had learned from the financial crisis of 1998 that macroeconomic stability was needed, but that went with a state dominated kleptocracy, answerable to him, and relying upon authoritarianism. So the question we face now is what will happen to Putin's regime? Can it survive or could there be another crisis? As in the last days of the Soviet Union, history had certainly not ended with the triumph of democratic capitalism. But asan now go on to show, in the case of China, authoritarian capitalism could deliver growth. Russia failed to handle the transition from Marxism to Marx markets. How did China manage the transition to markets with Marxism? So this takes me to China socialism or perhaps capitalism with Chinese characteristics. Well, the Communist Party came to par in 1949. Under Mao, China experienced three disasters, the great leap forward, the great famine and the cultural revolution. What it did not experience was Soviet style, central command economy with heavy industry and large collective farms. It only temporarily, the monstrous rule of Mao had the unintended consequence of allowing his successors to adopt a more flexible approach to reform that was possible in the Soviet Union or Russia under gaar. Now, Lenin and Stalin all viewed peasants as what they called potatoes in a sack. The revolution would come from the urban proletariat. By contrast, Mao favored power resting upon the countryside, wisdom he said, resided in the rural masses rather than technical experts and intellectuals who needed to be reeducated in the fields. To quote Mao the humblest of the cleverest, the privileged of the dumbest. In 1958, he launched the great leap forward, what he called a rush advance. So what did this consist of? Well, one was building dams, diverting rivers, but not using the sort of technical experts that the Soviets had there with the Aswan Dam. Rather, thousands of people with hand cuts were diverted from agriculture to construct poorly designed, wasteful schemes, which often failed the plan to divert the tau river from the south. The arid north diverted 3.4 million workers, 70% of the workforce of the whole province diverted them away from agriculture. He also rejected central planning and relied upon local party avers to create self-sufficient regional economies. He believed Mao believed that hostility from both the Soviets and the United States would be very dangerous to China. Therefore, he wanted what we could call a cellular economy, each region being able to operate independently rather than that Soviet style of linking it all together in one interconnected economy. So these areas could then later on, compete with each other as I I'll point out. And he did not rely upon the forced rapid growth of heavy industry. As you see here on this slide, he encouraged peasants to develop little backyard furnaces to produce steel. The slogan was every household of factory, every home ringing with a dinging dong sound. So these small backyard furnaces, again, diverted labor from agriculture into inefficient production of poor quality steel. He did embark upon collectivization to bring farmers together in rigidly organized groupings with communal kitchens, as in this rather fanciful propaganda picture. Workers were under strict discipline directed by inexperienced carders who didn't really understand agriculture and destroyed the environment through schemes of deep plowing, for example, which destroyed the soil. But of course, you did dare not say to the people above you that the, that the, uh, crops were not being produced because it was expected to increase the yields. So there was what was called an exaggeration frenzy. One group would say to the next group up the up the H hierarchy. Yes, we've met, we've all met our target. And as you went up the system, it became more than more. It was argued at the, uh, at the end of the whole system, what are we going to do with all the surplus food that we had? Well, in fact, there was a famine, 30 to 60 million excess deaths between 1958 and 62. How did Mao respond? Well with his usual callousness? When there is, I quote, when there is not enough to eat, people starve to death, it is better to let half the people die so the other half can eat their film. By 1961, some senior officials were admitting problems, but who could be blamed? Well, not Mao, the blame was placed upon the, the lower level people. Don Joing, who was at this stage, the Secretary General of the Communist Party, proposed returning land to the peasants. Mao saw that as a threat to his schemes. And in 1966, he launched the great proletarian cultural revolution to remove a bunch of counter-revolutionary revisionists. He attacked the upper levels of the party. So Mao turned himself against the party itself. He used populous language to turn the masses against the party. The red guards against officials who were publicly humiliated, including d who was denounced as a leader of the capitalist rotors. Mao was deliberately using nationwide chaos, as he called it, to create, and I quote, greater order throughout the land by quote, roasting the bureaucrats for a while without scorching them. In fact, they were more than scorched. They were, they were singed and burnt. Millions more people died in the culture revolution. Mao died in 1976. His, his widow and the gang of four tried to keep Maos a policies going. Uh, but the crucially, the, uh, the people's army sided against them took the, the line of the reformers, uh, that the new premier Hueng, who was premier from 1976 to 1980. So with support of the Army, he started to take a cautious approach. He obtained some modern technology by purchasing entire new factories off the shelf. New factories paid for by export earnings of natural resources. He didn't wish to expose Chinese industry to the world economy. He still favored central planning of bureaucracy in place of localism. So it was going more on the lines of the Soviets, but the approach didn't work. Buying modern technology off the shelf was not suited to Chinese conditions, and any case there was insufficient foreign reserves to pay for it. This is where d then came in, although he was never holding a top position, a premier or chairman of the party by December, 1978, he was the most powerful figure in the Chinese government, alongside Joji Zang, who was the, uh, premier and then became general secretary until he fell from power. After the Ian and Square massacre in 1989, D uh, Dan and XO were both disgraced in the cultural revolution. xo, um, reappeared as party secretary in one province where he gave freedom to household production. Then he moved to Beijing. He continued that focus upon what he call household production. If you now read any official history of the, uh, economic reforms in China, he's not mentioned. He's not, he's not, not a figure. He's, he was a lost part after Tiananmen Square, both T and Square, and he are written out of history. In reality, he was actually more important than Dun, who is now given all the credit. But together those two people were what I call the marketeers. Don saw that the cultural evolution had harmed scientific and technical improvement. What they wanted to produce was what they called socialist modernization, based upon four cardinal principles, the socialist road, dictatorship of the proletariat leadership by the party, and following the correct path of Marxism, Leninism, and Maoism. So that looks all very, uh, if you like, orthodox Marxism. But what did it mean in principle? Well, Don saw that China was lagging because of imperialism and feudalism, not because socialism was inferior to capitalism. Well, he said what we need to do is use capitalist methods in the service of socialism. We need to use capitalist profits, incentives, markets, and technology to create the material base for a socialist society. It is famous for Mark. I quote, it does not matter if the cat is white or black, as long as it catches mice, it is a good cat. So China needed a strong economy if it was not to be subjected to domination. He, as he said, the purpose of socialism is to make the country rich and strong. The task was development. Any opposition to development, even if it was looked capitalist, was in itself an opposition to socialism. So his aim was to use methods, but not to create a bourgeoisie, a bourgeoisie. He said, would eng engage in corruption and profiteering? And there, uh, is his quote, um, against, uh, the super prophets of millionaires. So this was socialism with Chinese characteristics. His colleague XO went even further in 1984. He made a rather ambiguous speech to the Pol Bvo that he said, spontaneous market forces, he'd only apply to a few sectors. But then he went on to say, it is no longer true that planning is number one under the law of value number two. Now, the implication of that statement is the prices should be determined by supply and demand by the market. In 1987, he came close to arguing that anything that led to growth was by definition socialist. The central task, he said in the primary stage of socialism was economic development before mature socialism became feasible. As he said, whatever is conducive to the growth of the production forces is in keeping with the fundamental interest of the people and is therefore needed by socialism. Whatever is detrimental to this growth goes against scientific socialism and is therefore not allowed to exist on, on two occasions, both in 1986 and in 1988, he even toyed with shock therapy, rapid price reform ending of state ownership before pulling back, um, and saying that, uh, that was perhaps not the best way to go. The dangers of going too fast was clear inflation protests and above all, Tiananmen Square. Now, against those two marketeers, we have what I call the balances. People like Chen Yon with his famous theory of the bird cage. The bird cage was to contain the market within the plan. One cannot hold a bird tightly in one's hand without killing it. It must be allowed to fly, but only within its cage. Without a cage, it would fly away and become lost. So the market must be contained within the plan. It was to be cautious. Experiments at selective points only, what he called groping for stones to cross the river in the beginning, steps, he said, must be small, walking slowly and above all the form must not undermine what he called socialist spiritual civilization. So he also mounted campaigns against corruption and materialism. He thought that loosening price controls too much would lead to inflation, social unrest, disruption in the countryside. So he wanted a dual track approach, a price controls and planning alongside the liberalized market. XO thought it could go faster because that would deliver growth, which solve inflation. Chen worried that would actually be too disruptive after Bannan Square, that view, the birdcage view, if you like, was in the ascendant. XO was disgraced, but Don was not willing to, um, allow that view to be overcome. He believed that Gorbachev had gone the wrong way, that he should not have surrendered the power of the Communist Party. So he wanted to maintain authoritarian power, but also to try continue market reform. In 1992, we went on what is called the Southern Tour around Southern China, calling for renewed market reform, arguing that China must not be like a woman with bound feet must stride boldly forward. That was not just freeing for the, the stepping stones. Market economies were not necessarily capitalistic. He said, we want capitalism as stepping stones to universal prosperity and richness. Okay, so that strategy then comes back. I want to suggest that very quickly, eight reasons why Don was able to succeed whilst, uh, Yeltsin and Gaar failed. There are eight points, I think, why the strategy of movement forward maintaining Marxism with markets worked. The first is that the structural context gave them room for maneuver. Those disasters of Mao meant small scale units, rather than massive heavy industries, which developed under Stalin, the cultural evolution, undermined collective or communal approach. It's empowered peasant households. Secondly, because of this nature of the cellular economy and the small scale peasants ownership that I was talking about, there was scope for local enterprise in what were called Town and Village enterprises. This was both based upon household production, if you like, building upon that disaster of Mao's small backyard furnaces. These town and village enterprises were able to compete with each other. Some were owned collectively by the local authorities, but the largest group of them were owned by families. Thirdly, the economy was opened up to the global economy, but within limits to preserve national sovereignty. So not a threat to sovereignty as in the Soviet Union or in Russia. Dung said, no country can develop by closing its door. Isolation landed China in poverty, backwardness and ignorance. But that opening up had to be under control of the Chinese government not buying off the shelf plant as had been suggested, I'd say initially, but by f direct investment, inviting multinationals who run factories, ideally through joint ventures, under the control of the Chinese government. This would allow the Chinese to learn. It would create export capacity, which could then create foreign exchange to get more technology. It allowed technology transfer, but under the control of the Chinese government. Fourthly, special economic zones on the coast, legally and physically separated from the rest of China, but integrated into the global economy. So you weren't undermining the rest of the Chinese economy, which is distinct interior regions protected in the special economic zones. You could have foreign investment, but with national sovereignty by the Chinese government, there was no need then to allow foreign investors to come in with multinationals with what done called external decadent ideologies. So you are opening up, but maintaining control, fifthly, you actually didn't need that much fallen capital for development because China had an extremely high domestic savings rate. The peasants moving to the towns didn't have much social welfare. They had to save very high savings rate, interest rates below inflation, which meant that they were losing out. But the people who were bothering money were gaining sixthly. The economy could grow outta the plan because the advanced heavy industry area was quite small. It was possible for these other areas to gradually grow and overwhelm that small planned economy. Unlike in the Soviet Union where the planned economy was, was the economy. So you could have this growing outta the plan idea. Seventhly, and I've already hinted at this, the cellular economy meant that there could be regional competition, local experimentation. If something failed, you abandoned it. You blamed the local officials. If it was good, Beijing took it over and said, this shows the wisdom of the, of the government. And finally, ly tight party control gave confidence by the leaders to consider whole range of policies. The party drew upon ideas who, for wherever that could come. And most, the most famous one was the cruise on the Yangs Sea River aboard a steamship as it cruised along the yangs Sea River. The Chinese party officials met economists from around the world, Chicago, Hungary, London, you name it. They, they had it. They also worked with the World Bank. The World Bank loved working with China. They said, I quote one bank official. It was a marriage made in heaven. It party in the bank were both professional bureaucracies, but who was under control. Not the World Bank, but the, uh, powers that be in Beijing. So this provides the basis for things to be, to be pushed, uh, pushed forward. Now, what we've got now, I think it's something of a backlash back towards more state control, a shift away from household, uh, town and village prises to more state control, state identifying sectors to grow in 19 94, 4 pillar industries were identified in 2015. The so-called made in China to 2025. Policy aimed to specify those con part of the economy, which would grow to produce goods, which would not be based upon cheap labor, but moving towards highly technology, sophisticated production with greater independence from foreign suppliers, firms like, like Huawei in telecommunications, for example, but also the Belt and Road initiative heavy lending overseas. The question now is how sustainable is the Chinese economy? I think there were some worrying signs. I've suggested that this, that Russia is, is, is in a highly vulnerable situation. But what about China? The high savings I talked about have gone into property and local authorities have spent on pro on projects which do not make a, a return. The property sector was central to growth within the domestic economy that now has serious problems with the failure of ever grande and other firms. Secondly, of course, there's international tensions that reliance of China on export markets. It's led to resentment by the United States. Uh, China has bought, uh, treasury debt, uh, treasury bills in the United States. There's an unstable international relationship between the two, the two countries, the US administration, both Trump and Biden, argue that China is not obeying the terms of membership of the World Trade Organization. Well, they're right in that China has become more assertive, and at the same time as Russia has become aggresses, aggressively nationalistic, the two are possibly aligning. So historians are good at looking at the past. We're less good at looking at the future. The Cold War ended in 1989. It seemed to fukiama wrongly with the victory of democratic capitalism and to a rules based international or the dominated by the United States. We now have a new standoff between democratic and authoritarian economic systems, but it's not like the Cold War. In the Cold War, the Soviet Union was not deeply integrated into the global economy. The US and Soviet economies were distinct. Now, the Chinese and American economies are deeply intertwined and attempts to uncouple them, like for making apple phones, for example, will be difficult. China is now the second largest world economy and a major investor in the Belt and Road Initiative. It's making claims to create a new set of international institutions like here, the recent Bricks conference there with Brazil, uh, South Africa, India, and Russia. Although of course there are major divides even between them. Can there be multilateralism with Chinese characteristics? Well, there are internal tensions there, but similar there, internal tensions within the G seven. The Russian economy is weak, but it has a nuclear arsenal could form the lives with China on, uh, security issues. Meanwhile, the United States has a serious problem of a failing political system. Historians are not very good prophets. Uh, Walter Rostow is a warning against allowing economic historians to have anything to do with guiding policy. I hope what I've been able to do today is to tell you how we got to where we are, but to me, the future looks deeply alarming. Thank you, Professor Dalton. Thank you very much. That was a fascinating lecture. We do have time for a couple of questions. Um, if you don't mind, I think, uh, we'll start off, um, on here. And there's a few people, including myself, I have to admit, who want to pick you up on this, in this ideology thing. And who might possibly want to explore a more sympathetic reading of Fama's thesis, maybe slightly closer to something like Daniel Bell's idea that actually when we say end of history, what we mean is that two great unified ideologies will never again collide in the way that perhaps slightly apocryphally they did previously. And that actually we will be seeing something more like this. Lots of little variations or experiments on what is essentially however, capitalism. What would you say to that? Okay, so you're saying capitalism has tried thrived, uh, and that, uh, here we have capitalism working within, uh, China, um, and it's perhaps not so different. You might be suggesting from, uh, what we're having in, in, um, uh, the case of United States. I think that's slightly, um, minimizing certain other issues, uh, which are to do with, uh, civil rights humanitarianism, um, and e and of course, as we well know, even if to economic systems of other similar, uh, like for example, Germany and the United Kingdom before the First World War. It does not mean to say that ideological differences disappear with a possibility of, um, global warfare. Sorry to be so depressing. Um, on, on Halloween is pretty, uh, pretty grim, grim thing. I think there, there are, uh, fundamental, um, ideological differences there. Um, of course, the, the, the Americans believe that capitalism must go with democracy. No, it doesn't. Yeah. Um, you could say that the most successful, uh, capitalist regimes have been authoritarian, which is a plug for my next lecture, uh, which is on authoritarian capitalism in the Asian tiger countries. And that, of course, was the big mistake made by the IMF mm-Hmm, <affirmative>, I was acting more, perhaps more likely than I would normally in today's lecture. Uh, they believed that, um, the, the, uh, the way forward was always American style capitalism. Uh, they rejected what career and other places were doing, which is in terms of state-led capitalism, uh, which is not necessarily guided by short-term markets, but by long-term, um, vision. Now, what we, I'm not an advocate for authoritarianism, am I hasten to add? But I think what we need is, is long-term vision. What we need is a fundamental reform of American capitalism. Here, here, here, here, <laugh>. But I have the time to go into that. Now, Do we have the microphone in? Lovely. Um, okay. We have a question at the front here, and then the, If you are saying there's no correlation between democracy and capitalism, and I agree, do you think there's any alternative to neo neoliberalism capitalism kinda thing? And is nationalism going to the way forward? Do I totally agree this? Okay. Right. But this is now a plug for my new book <laugh>, uh, uh, which, which came out in this country in May in the States in, uh, November, uh, next month, um, where the final chapter is about how to, uh, reform capitalism, uh, how to reform neoliberalism. And what I would argue, in fact, it's rather similar to what I argued in an earlier Gresham lecture. Uh, if you go online, uh, is there the, I did a series called Three Crisis of Capitalism. And the, what I argued in the final one, I think, is that the 2008 financial crisis might have been the end of neoliberalism, and it wasn't. Uh, and it perhaps it ought to have been, uh, what I'm, what I would argue for is, uh, a need to, uh, rectify close inequality, uh, that the post-war order of, uh, democratic capitalists, if you like, after the, after the war, reckoned upon a social compact between capital labor and the state, which has been broken. Uh, and it's what we have now is a widening divergence between return to, to capital and return to labor. And many capitalists, like George Sos or uh, for example, would argue that that's the major threat to capitalism. And it leads to populism and it needs to nationalism. And that populism and nationalism are not the solution because the big crisis facing us now is climate change, which is the most fundamental global collective action problem. And if you go for nationalism, that doesn't resolve it. On the other hand, there are those people who are ly call return for to the post-war multilateral order like Jake Sullivan did in April, um, Joe Biden status security advisor. Um, and that's not gonna going to happen because of the tensions I was, I was talking about. What we need is a proper balance between nationalism, which means looking after the welfare of people within individual societies and internationalism realizing that in fact, if you don't have that, you have like the 1930s beggar, my neighbor policies, wherever you'd pursuing nationalism means that everybody in the whole world suffers. I dunno if that's an answer to your question. Thank you. Please throw me in thanking Professor Dante and yourself.