When historians look back on the twentieth century, they will note that the first three-quarters of the century were marked by extreme and violent revolutions on both the right and the left. They may be even more intrigued, however, by the fact that in the last quarter of the century, the governments established by those revolutions shifted to considerably more moderate positions and they did so in a nonviolent manner.

The two most notable examples of this phenomenon are in China and the Soviet Union, where Deng Xiaoping and Mikhail Gorbachev are engaged in trying to turn their countries away from what has been called the Stalinist model, with its emphasis on heavy industry, centralized planning and authority, and political and cultural repression. There have been previous efforts to reform the Stalinist model, but what makes Deng and Gorbachev different is that they not only acknowledge the need to change, but seek to implement changes that challenge the vested interests of their own communist parties. Most of their colleagues, whether high officials or middle-level bureaucrats, seem willing to recognize the shortcomings of the existing system, but they oppose with all their being its reform—if the reform threatens their existing status.

What has made both leaders deviate so sharply from the path of their predecessors? Why at this time? What is their attitude toward each other’s efforts? How do their efforts compare? And what are their chances of success?

II

To understand what both leaders must overcome, it is necessary to recollect what each found when he assumed power. In some ways their situations were similar. At the time of Deng’s return to power at the Third Plenum of the 11th Central Committee of the Chinese Communist Party in December 1978, and Gorbachev’s selection as general secretary of the Soviet Communist Party in March 1985, both were confronted with stagnant economies that were based on state ownership of the means of production, centralized planning and collectivization of agriculture. Each man led one-party states that emphasized democratic centralism, meaning that all decisions and administrative appointments flowed from the top down.

Using this Stalinist model, both countries had initially achieved rapid industrial growth, particularly in heavy industry. Expansion of the agricultural sector proved to be more of a problem. Over the years Soviet harvests did increase, but so did the costs of production. Moreover, because of inefficiencies and waste in production and distribution, even when the harvest increased, supplies were often inadequate, and formal and informal rationing was commonplace. In China the increase in population meant that in 1976 the per capita food intake was no higher than it had been in 1957.

Deng’s and Gorbachev’s predecessors had been so determined to speed economic growth that they periodically adopted emergency crash programs. Invariably, however, these elixirs caused extreme stress throughout both societies. Thus Mao’s Great Leap Forward, from 1958 to 1960, disrupted the economy and intensified the bureaucratization of agriculture, and his subsequent Cultural Revolution (1966-76) ripped apart China’s social fabric. Similarly, Stalin’s collectivization, purges and emphasis on heavy industry crippled critical sectors of Soviet economy and society. These efforts to speed the process of modernization caused trauma and even loss of life that have encumbered later generations.

That they assumed power in the aftermath of a period of economic and political instability in China and stagnation in the Soviet Union made Deng’s and Gorbachev’s tasks all the more urgent. Moreover, both countries were surrounded by neighbors developing at much faster rates and providing their populations with higher standards of living. China awakened from the paralysis of the Cultural Revolution to find that its once poor cousins, Japan, South Korea and even Taiwan, had broken into the ranks of the economically advanced. More and more Chinese began to question whether the communist state they were building and their strict adherence to Marxism-Leninism-Maoism would make possible a better life for the masses. As Deng had boldly said, the color of the cat mattered less than whether or not it caught mice. This assertion in the Maoist era was revolutionary.

While the status of the Soviet economy relative to that of its neighbors in the West was not nearly as backward as China’s compared to its East Asian neighbors, Gorbachev realized that it had failed in some areas and was inappropriate in others. Admittedly the Soviet Union was producing more steel, petroleum, gas and machine tools than any other country in the world, but the quality of most of its manufactured goods was far below world standards. Its harvests, which had once made large grain exports possible, now necessitated large imports, and its population was poorly served. Equally if not more important, the Soviet Union was having difficulty keeping up with the development of the new advanced technologies. In many cases the gap between the Soviet Union and the rest of the world was actually growing. In the age of high technology, which demands innovation, flexibility and rapid communication, China’s and the Soviet Union’s cumbersome bureaucratic centralization was counterproductive. Perhaps most important, there was increasing awareness of the gap between what their regimes had promised in improved livelihood and what they delivered.

While the impetus to reform in both societies came from a growing sense of inadequacy and malaise due to economic deterioration and ineffective leadership, there were some sharp differences. As long as Mao was alive, China was marked by convulsive upheavals: the Anti-Rightist Campaign of 1957-58, the Great Leap Forward and the Cultural Revolution. Stalin’s rule was marked by periodic purges, but after his death in 1953 the political process, despite occasional disturbances, was relatively stable. In fact, after Brezhnev forced out Khrushchev in 1964, there was relatively little change in either Soviet policy or personnel.

In some ways the Brezhnev era was too stable. It might have made economic and political revitalization easier if Brezhnev had been more mercurial or if economic and political conditions had been more chaotic and closer to collapse. Conditions seemed to deteriorate in the last few years of Brezhnev’s life, but not quite enough to generate a feeling of panic. Concern about the future became more noticeable in 1979 when the Soviet Union suffered the first of six consecutive poor harvests and began a drop in output in some key industries. This led to the reinstitution of rationing in over a dozen cities. Accompanied by an overall decline in individual integrity and a sharp increase in corruption and cynicism, this fall in the rate of economic growth precipitated a deterioration in popular morale. Not surprisingly, there was an increase in worker protests and popular demonstrations.

Since 1979 marks the onset of the Soviet Union’s lower or negative growth rates, some observers argue that by holding on to office until his death in 1982, Brezhnev lived four years too long. But perhaps if Brezhnev had lived four more years, he might have brought the Soviet economy and political life to a level of chaos similar to the Cultural Revolution in China and the uprisings in Hungary. If so, then the Soviet people might be more welcoming of far-reaching economic reforms today.

By contrast, Deng’s economic reforms were preceded not only by lower growth rates, but also by social chaos. The targets of Mao’s Cultural Revolution were China’s intellectuals, skilled workers, managers and virtually the whole party elite. The Cultural Revolution caused intense, sometimes violent, conflicts in the countryside as well as in the cities. Thus, at its conclusion, the party apparatus was in shambles, the economy was stagnating and the population was alienated. Whereas the Soviets blamed their aging leadership for the ills of society, the majority of the Chinese blamed the political system and ideology as well as their leaders for allowing such a calamity as the Cultural Revolution to occur. Therefore, they were more ready to accept radical changes in the existing system.

In some areas, such as Anhui province, economic conditions had so deteriorated that peasants broke away from the strict confines of the communal work system and once again began to work their prerevolutionary family plots. Whereas Mao had condemned such infractions when they first occurred in the early 1960s following the economic debacle of the Great Leap Forward, in the late 1970s the party authorities in Beijing could not agree on a response; after their persecution in the Cultural Revolution, they were still unsure what policies to follow. As peasants continued to take matters and the land into their own hands in Sichuan province and elsewhere, the Deng regime ultimately gave formal approval to this phenomenon, called the household responsibility system. Peasant families signed long-term contracts for 15 years or more with the state, which theoretically owned the lands. After paying a fixed amount to the state, peasants could grow whatever they pleased and sell it anywhere at whatever price they could get. Although there were a few pockets of resistance to the responsibility system, 96 percent of Chinese peasants were involved in it by 1984.

Unlike China under Mao, conditions in the Soviet Union under Brezhnev had not deteriorated enough to cause such relatively spontaneous actions. As any visitor to Moscow in late 1982 or early 1983 could see, there was genuine enthusiasm for Yuri Andropov as Brezhnev’s successor, but no mandate for dramatic change. It was assumed that Andropov, as the onetime head of the KGB, would be a law-and-order man who could return the country to discipline, dignity and economic growth. That in effect is what happened. Within a few months, after a crackdown on corruption and drunkenness, production and economic rates of growth began to increase again. The growth rate was not as spectacular as it had been under Stalin, but it represented a respectable improvement. As conventionally measured (that is, by the number of tons of steel produced), the Soviet economy was growing. It made no difference for the statistics that much of the steel was the wrong kind, was sent immediately to storage and did little to improve consumer well-being.

As the economy began to recover, pressure for change abated. This sentiment was reflected in the statements of Nikolai Baibakov, then head of GOSPLAN, the State Planning Committee. When asked to comment on a study by a scholar at the Academy of Sciences in Siberia, Tatyana Zaslavskaya, criticizing the Soviet economic system as obsolete and advocating the scrapping of the central planning system, Baibakov took the offensive: "Who says that central planning is counterproductive? . . . Look at our growth rates. We are growing faster than most market economies, so why change?" By implication, he also asked whether it was worth the risk of unemployment and inflation that such a change would involve. Baibakov’s response was not surprising. It reflected the views of the Soviet economic bureaucracy, which after 55 years of central planning had become deeply entrenched in the system and opposed to change. Baibakov was removed by Gorbachev.

III

In allowing the peasants to work for themselves instead of the communes, the Deng regime approved what was already beginning to happen. The result was an immediate increase in food production, which of course benefited the urban areas as well. In less than ten years China’s per capita income more than doubled from $150 to $350. Village and township manufacturing and trade enterprises also emerged, with annual output increasing at 20 percent a year. Deng has called this phenomenon "our greatest success—and it was one we had by no means anticipated." Because peasants make up 80 percent of the Chinese population, as they began to prosper a majority of the population acquired a vested interest in the success of the reforms. Although the areas richer in resources and skills have benefited much more than the poorer areas, Deng has concrete evidence to show that the reforms can make a significant difference. Prices might be higher, ideologues might grumble about backsliding into capitalism and inequalities may increase, but the proof is in the peasants’ rice bowl, which has become fuller and more varied than ever before.

In many ways this household responsibility system resembles the Soviet prodnalog system introduced by Lenin in 1921 as part of what came to be known as the New Economic Policy. Abandoning the policy of "war communism" and the nationalization of farms and businesses, the NEP allowed peasants to lease and till their own land, replaced the requisitioning of grain with a tax, permitted private ownership of small factories and trade, and allowed the sale of goods through a free market.

China’s responsibility system in the countryside increased the demand for consumer goods and materials, prompting reform in the urban and industrial sectors on a similar pattern. Out of respect for ideological niceties, the state continues to retain control over the ownership of industrial and commercial property. Just as in the countryside, the state makes arrangements to lease or contract the operation of industrial and commercial enterprises. The leasing system began in 1982, when the state leased the operation of a failing silicon workshop in a Shanxi province copper refinery. The lessee pays taxes and rent for the use of the shop or parts of a factory, but, as in the West, after payment of a specified amount the lessee keeps what is earned—or absorbs the losses if the enterprise fails. And as in agriculture, the lessee can be an individual, family or cooperative group. The lessee arrangement is used primarily for small, often failing enterprises. As of mid-1987, 10,000 to 15,000 such arrangements have been set up, and approximately 95 percent were operating profitably. Moreover, in many cases, such as the Shenyang Motor Oil Pump Factory, the lessee has taken on the operation not just of a shop but of the whole factory. Complaints are heard that such lease arrangements are so profitable that the lessee quickly begins to earn much more than before, on occasion as much as 37 times the average of his workers’ income, and becomes "rich."

Whereas the lease arrangements are primarily for small-scale operations, the contract system is for large and medium-sized state enterprises. Since 1956 in China the factory director has been subordinated to the factory’s party committee, which makes the production and management decisions. The contract system is designed to break the hold of the party committee and its often economically irrational interference in the enterprise. The factory manager, not the party committee, is to be the decision-maker and the one answerable to the state. The party committee continues to implement general principles and carry out ideological and political education, but the factory director is to direct production, recruit factory personnel and manage the enterprise.

The idea is to separate ownership from management. The manager contracts with the state for the delivery of a certain amount of profits, which are to increase by 7.2 percent annually. In fact, however, negotiating the contract often takes as much ingenuity and influence as the actual production effort. As always, it helps to have friends in high places willing to agree to easy terms. Any profits over the contracted amount are kept by the enterprise, of which 60 percent is to be used for expansion, 20 percent for collective welfare and the rest for employee bonuses. If the basic quota to be delivered to the state is not fulfilled, the enterprise must cut the retainable profits and reduce bonuses. This system is now being tested in China’s major cities, and if it proves successful, it is to be adopted nationwide.

Whereas leasehold and contract systems were not established until the mid-1980s, as early as 1979 the Deng regime had encouraged the formation of cooperative and private entities in service, commerce and small industry. While the industrial output of the state sector increased by 81 percent from 1978 to 1986, the industrial output of cooperatively owned enterprises rose 220 percent, albeit from a much lower base. That is exclusive of the industrial output of cooperatives in the rural areas, which rose even faster. While private ownership is most common in retail and service enterprises, it expanded in the mid-1980s to include manufacturing and transportation, some enterprises employing over 100 workers, and in the lower Yangtze region, as many as 1,000 workers. In 1986 private enterprises accounted for only 16 percent of total sales, but they constituted over 80 percent of the total number of commercial and service entities.

Another new phenomenon is the reopening of the Shanghai Stock Exchange, closed since 1949. Hundreds of people crowded a small banking center on September 26, 1986, when trading began in two Chinese joint stock companies. In the fall of 1987 more than 2,000 Shanghai citizens lined up to buy stocks issued by the Industrial and Commercial Bank of China and the Shanghai Trust and Investment Company. Stock exchanges have been opened in several major cities. As yet only a small number of shares are being offered, and the stocks issued are not to exceed 30 percent of the total capital stock of an enterprise. The public sector is to remain predominant.

China’s urban and industrial reforms have encountered more ideological and bureaucratic resistance than the rural reforms. As opposed to the party cadres in the countryside, who benefited from the reforms by overseeing the reallocation of land and staking out franchises in transportation and other local enterprises, the party cadres in the urban industries gain little. If anything, they are likely to lose power because they are asked to relinquish their authority over production and management decisions, especially with the introduction of leasing and contract systems. An article in the national newspaper Gongren Ribao pointed out that "some people still regard the enterprise leasing system as a kind of private ownership system" and the factory director responsibility system as "cancellation of the party’s leadership."

Although China had emulated the Soviet system of planning and management in the 1950s, its centralized planning system was always much less comprehensive and detailed, and has been managed centrally by a relatively small staff compared to the large bureaucratic ministries that plan the Soviet economy. Consequently, party resistance in China today comes more from inertia and opposition at the individual enterprise and local levels, in contrast to the Soviet Union where party resistance to industrial reform is concentrated in particular in the large planning bureaucracy in Moscow. Since the party committee plays only a minor role in Soviet enterprises, opposition comes more from such organizations as GOSPLAN and the industrial ministries, which are much more powerful than their Chinese counterparts.

IV

The Soviet reform process evolved differently than did the Chinese process. When Andropov instituted an immediate crackdown on indiscipline, corruption and alcoholism, he also commissioned several studies looking at possible economic reform. But his illness and death only a year and a quarter after he assumed control made it impossible for him to implement any of these proposals.

Talk of reform began in earnest only in 1985, when Gorbachev succeeded Konstantin Chernenko as the general secretary of the Communist Party. Then Gorbachev, who had been Andropov’s protégé, attempted to pick up where Andropov had left off by again cracking down. This was implemented in the economy with a campaign of "intensification," which meant using existing resources more effectively, incurring less waste and introducing second and third shifts in factories where there had been only one. Resuming the attack on drunkenness, Gorbachev not only imposed higher vodka prices but forbade sales until two in the afternoon.

Like Andropov, Gorbachev decided to carry his campaign to the people. Whereas Andropov’s travels were cut short by his illness, the younger, healthier Gorbachev popped up all over the country. No Russian or Soviet leader, including Khrushchev, ever appeared in so many nooks and crannies. Gorbachev is personally attempting to arouse the people to work for themselves, as well as for the greater glory of the state. Unlike China’s current leaders, Gorbachev stressed psychological incentives rather than material incentives in the early stages of the Soviet reform. During Gorbachev’s first year as general secretary, his idea of economic reform involved little more than the traditional although contradictory call for improved centralization and more effective decentralization, but with no meaningful institutional change.

Whatever their impact on the masses, Gorbachev’s travels also had an impact on him. An analysis of his speeches indicates that gradually he came to realize that the Soviet Union’s economic problems could not be solved by exhortation alone. As he saw the stagnation and heard the complaints about the corruption and privileges of local party officials, he sensed that a return to discipline and an attack on alcoholism would not be enough to address the deeply entrenched nature of the Soviet Union’s problems. Thus Gorbachev decided to go beyond renewed emphasis on discipline and sobriety, and advocate cultural, political and social change, and ultimately radical economic reforms. Early in his administration he called for glasnost, a summons for public criticism of bureaucratic wrongdoing, and advocated decentralization. In September 1986 he began to call for "democratization," by which he meant the introduction of elections with multiple candidates at the local level in order to curb some of the more extreme abuses of power. He hoped to unleash local initiative and creativity.

In contrast to Deng, Gorbachev found that he could not set economic reform in motion without first loosening the country’s political controls. Glasnost and "democracy" on the local level had to come first. In China the controls had already been somewhat loosened by the disruption and decimation of the bureaucracy during the Cultural Revolution. Even though Deng in 1980 criticized the party’s "over-centralization" of power, it was only after his economic reforms began to slow in 1986 that he and his reform colleagues began in earnest to advocate political reforms, principally the reduction of the party’s role in the economy and separation of the party from the government and enterprises so that they might run more efficiently. They too called for "democracy" on the local level to encourage grass-roots initiatives.

Although the Soviet Union has a much more advanced economy, in many ways Gorbachev’s problems are more serious than Deng’s. Whereas the Stalinist system in China had been in place for almost 30 years when Deng began his reforms, at the time Gorbachev took over, the Stalinist system in the Soviet Union was already 65 years old. There are many onetime Chinese entrepreneurs who remember their old practices and have revived their old market ties. Few of the earlier Soviet entrepreneurs are alive today. While the Stalinist model is an alien body in China and therefore less integrated, it evolved on Soviet soil; its institutions are much more deeply rooted. The Soviet Union also has a more intensively developed capital infrastructure. Although this means that the Soviet Union has a greater industrial capacity, it also means that it is one that had been built up in the 1930s. Much has become outmoded. The average life of its industrial stock is 28 years. That explains why Nikolai Maslennikov, the chairman of the Budget and Planning Commission of the Supreme Soviet, has estimated that at the present rate of replacement it will take ten to 15 years to overhaul the existing Soviet industrial structure. In many ways it would have been easier to institute reform without such a large but obsolete capital endowment. If the Soviet economic system is to become competitive, Gorbachev will not only have to create a new mind-set, but a whole new industrial and agricultural infrastructure.

Unlike their Chinese counterparts, Soviet citizens have shown little spontaneous enthusiasm for the reforms, at least in the economic sphere. To generate the decentralization of decision-making that Gorbachev wants, he must first order people at the local level to think for themselves, whether they want to or not. Soviet peasants, for example, have not taken it upon themselves to break out of the collective farms. For that matter, when told that the collective farm could sell as much as 30 percent of what they grew for higher prices in cooperative and collective farm markets compared to what they might earn by selling their produce to state procurement agencies, the farms sold only two percent of what they grew at the higher price. Gorbachev has also tried to encourage the peasants to join in something like the contract responsibility system, and even increase the size of their garden plots, but generally there has been little enthusiasm and in some cases outright resistance.

Accustomed to state paternalism, even if meager in its rewards, the Soviet population, particularly the Russians, seem much less willing than the Chinese to break out of the state-ordered and protected system and assume the risks of success. Soviet peasants remember the drastic punishment meted out during the collectivization of the late 1920s to anyone who was considered to have shown too much initiative or earned too much money. Moreover, the Chinese extended family has traditionally played a much more important role in economic endeavors than has its counterpart in the Soviet Union. Unlike Chinese family farms, which have had a long history, Russian family farms were barely established when the Soviet government first nationalized and then collectivized the land.

The same reluctance of the Soviet peasants to set off on their own prevails in the city. True, past reforms have been short-lived, but the lack of enthusiasm for Gorbachev’s initiatives, particularly when compared to the alacrity with which the Chinese responded to similar initiatives, is striking. In all of Moscow (population 8.5 million) only 11,000 applications for private trade were submitted after private business was authorized on May 1, 1987. Admittedly it is still very early, but during a visit to Moscow and Leningrad in June 1987, for example, we found that only a few dozen individuals had sought official permits to drive their own private taxis. Partly because of the 70 years of repression and partly because the beginnings of Russian entrepreneurial activities in the late nineteenth and early twentieth century were cut short by the 1917 Revolution, there has been little spontaneous movement toward private enterprise now that it is allowed in the Soviet Union. Admittedly there is more interest in private trade among the non-Slavic nationalities, such as those living in the Baltic states and the Caucasus. However, fear of enriching the ethnic peoples at the expense of the Russians has also served to some extent as a constraint on promoting private initiative.

The Soviet Union’s plan for the private sector is much more circumscribed than China’s. For example, the Soviets have prohibited the hiring of workers other than family members. Of necessity, that precludes most private manufacturing activity. While the Chinese initially took a dim view of any large-scale hiring of non-family members, the hiring of from seven to ten people was allowed from the beginning. Now the number of workers that private businessmen can hire in China is indeterminate, reflecting the existing reality. It may be that with time the Soviets, like the Chinese, will become more flexible. But so far, not only do the Soviet central authorities seem uninterested in adopting a more liberal stance, but the potential entrepreneurs themselves, compared with their Chinese counterparts, also appear less eager to respond and less ambitious. Moreover, the signals the Soviet central government is sending are contradictory. For example, in mid-1986 Gorbachev announced a far-reaching crackdown on unearned or privately generated income. That was followed, however, a mere five months later with the decree authorizing the legalization of private business as of May 1, 1987. No wonder potential Soviet entrepreneurs are hesitant about venturing into private enterprise, even if the practice is officially approved.

V

Gorbachev’s attempts at reform have been further complicated by the fact that reform came to China first. When the Chinese began to experiment in late 1978 and 1979, most Soviet observers regarded virtually everything the Chinese did as heretical, a betrayal of Marx, Lenin, Stalin and Mao. Their negative response was only in part ideological. The Soviet Union, regarding itself as the leader of the communist world, was adverse to copying anything initiated by a subordinate member of the bloc, particularly large, rebellious China. Typically, therefore, any suggestion that the Soviet Union might usefully learn from the Chinese was met with derision and contempt. That at least was the attitude until early 1986, nine months after Gorbachev came to power.

During a visit to Moscow in January 1986, we were told that officials within the senior party leadership had ordered another look at the Chinese experiment. Shortly thereafter the tone of Soviet writings about China changed abruptly. Whereas before there was little positive to report, beginning in February 1986 it often seemed that there was nothing negative. The profiteering, increasing inequalities, invitations to foreign investors, inflation, unemployment, prostitution, corruption and wastefulness were often ignored. In any case they were no longer viewed as a sellout to capitalism and imperialism. Similarly, in early 1987, after looking on enviously as foreign business investment flooded into China, the Soviets also began to invite proposals for the creation of joint ventures on Soviet territory. This was the first time that private trade and joint ventures had been permitted in the Soviet Union since the 1920s.

It is instructive to compare the Soviet and Chinese approaches to joint ventures, as well as private enterprise. As soon as joint ventures were approved in China, there was an immediate response from within the country as well as from without. In 1980 there were two joint ventures and one wholly owned foreign enterprise; by mid-1987 the number had grown to over 7,800 Sino-foreign joint ventures and wholly owned foreign businesses. In addition, China itself has established 277 enterprises outside China. Although Gorbachev has repeatedly called for joint ventures, only about 20 agreements had been formally reached by December 1987, and there was little indication that there would be a substantial increase in the near future. A distinct advantage the Chinese have in this respect is that the majority, 80 percent, of their joint ventures are with Hong Kong and overseas Chinese who want to help their motherland modernize as well as help themselves. The Russians do not have such a large overseas entrepreneurial community and, unlike their Chinese counterparts, those there are seem to have little desire to help develop the land of their ancestors.

The Soviets’ more cautious attitude toward joint ventures is also reflected by the differences in the treatment of foreign investment. So far the Soviets have shown little interest in creating special economic zones similar to those established in China in the early 1980s. These relatively free trade entities, like the one in Shenzhen, though slow in getting started, are becoming increasingly successful in bringing in foreign capital and know-how, especially from overseas Chinese. The Soviets apparently regard such zones as a form of extraterritoriality, something the Chinese at one time were determined to eliminate and that still offends the Soviets.

An even more sacrosanct issue for the Soviets is the question of the degree of foreign ownership. Not only are the Soviets preceding much more cautiously, they are steadfastly refusing even to consider any ownership arrangement inside the Soviet Union other than one that gives them at least 51 percent control. Not surprisingly, almost no thought has been given to allowing foreigners the right to establish wholly owned foreign enterprises like the 130 already set up in China.

Another important difference is that while Soviet reforms so far have focused primarily on industry in the cities, the Chinese began their reforms in the countryside. Admittedly only 20 percent of the Soviet population, not the 80 percent as in China, resides in the countryside. In addition, Soviet peasants work in a more severe climate and on broader expanses. This means that hard work alone will not produce the surge in output generated by the Chinese reforms. Soviet peasants must have more in the way of capital for barns, roads and machinery so they can respond rapidly to weather changes. Yet because the response of the Chinese peasantry has been so impressive, Gorbachev has apparently concluded that even without a massive investment program, unleashing Soviet peasants may still stimulate some increase in the supply of food. But as mentioned, his policies in this area so far have generated little enthusiasm and have brought little improvement in food supplies, particularly in meat, fruit and vegetables.

The central bureaucracy’s resistance to economic reforms exists in both societies, but even more so in the Soviet Union because the Soviets have had tight central control twice as long as the Chinese. Thus far no amount of dismantling, merging, exhorting or pleading seems to have helped. As one Soviet observer put it: "Despite the passage of new laws demanding independence for the enterprise, the industrial ministries in Moscow continue to dictate orders, tax profits, and allocate imports." "This is armed robbery!" complained one Soviet manager in describing his "new" relationship to his old ministry. Another complained: "We are not masters of our resources. The ministry counts, decides, and approves everything for us." In the Soviet Union as well as China the top leadership can promise more autonomy for the enterprise but it cannot force the central bureaucracy to yield it.

Another variant of this resistance to reform by the central bureaucracy is the struggle, particularly in the Soviet Union, to reduce military expenditures. As long as the Soviet Union expends 14 to 16 percent of its GNP on the military, Gorbachev will be unable to divert sufficient resources to light industry and consumption. Much of the alienation and unwillingness of the Soviet work force to extend itself is a consequence of the continued emphasis on heavy industry and the military, which would be difficult to sustain without central planning.

Deng recognized immediately that he had to change the concentration on heavy military industries at the expense of consumer goods. As early as November 14, 1974, during an interview with an American delegation before he was purged a second time, Deng insisted that "if we compete with the Soviet Union in atomic bombs, we can all go to meet God. If we make those bombs, we would not have enough food or clothes." When he returned to power in late 1978, he moved immediately to reorient China’s priorities. Whereas in 1973 China was allocating over 13 percent of its GNP to the military, by 1983 it had been cut back to 8.6 percent and is probably closer to six or seven percent today. In 1985 Deng called for the demobilization of one million soldiers; this met resistance, and as of mid-1987 only half a million had been demobilized. Nevertheless, the decrease in military expenditures has allowed Deng to respond to the increased demands of China’s population for more consumer goods and of China’s peasants for construction materials for their homes and farms. Being one of the few survivors of the Long March, Deng has the power to cut back China’s military expenditures. Moreover, China’s military hierarchy had lost some prestige because of its involvement in the Cultural Revolution.

If he is to succeed with his reforms, Gorbachev must be able to get a similar decrease. Lacking military experience, Gorbachev has had to defer to his military, who have resisted such a move without some arms control agreement with the United States. This as much as anything explains his eagerness to reach an agreement with President Reagan. He still has to push the actual cuts through his military-industrial complex, where he is bound to encounter more resistance than Deng has.

VI

In addition to bureaucratic and ideological opposition, Gorbachev and Deng face basic structural problems which may prove just as difficult to overcome. Both leaders seek to reduce party and bureaucratic direction of the economy, but factory managers must have some other form of signal to guide them. Both leaders have indicated that in place of administrative dictate, they want to substitute economic stimuli. But that means increasing the power of the market and allowing prices to reflect supply and demand conditions. In some instances that will mean that the prices will fall for products that are out of style or obsolete. But as both are economies of shortages, it is more likely that the prices for products in demand will rise, leading to inflation, at least in the short run.

China had already experienced some inflation when it freed prices on television appliances and some agricultural products in the mid-1980s. This poses severe political problems especially from workers, bureaucrats and intellectuals unhappy at having to pay higher prices for food, and may explain why in early 1987 China temporarily suspended attempts to free up prices. It also explains why the Soviets, except for a commitment to free many prices by 1991, have as yet done virtually nothing but agree that it is an important step to take.

Two other issues that both countries will have to deal with are unemployment and bankruptcy. The existence of small-scale private enterprises and cooperatives gives China an outlet for its unemployed, but it is still troubled by bankruptcy. There have been a few acknowledged state enterprise failures in both countries, but bankruptcy is politically and ideologically controversial. The Chinese and even more so the Soviets have long argued that bankruptcy and unemployment are only supposed to occur in the capitalist world. Since supposedly no such problems exist under socialism, there was no need for unemployment offices, unemployment insurance, computer job banks or job retraining programs. Yet economic authorities in both countries recognize that without the threat of unemployment and bankruptcy, labor discipline and product innovation will suffer.

China and the Soviet Union seek to become better integrated into the world economy. In the pre-Deng and pre-Gorbachev eras, both countries prided themselves on the insulation of their currencies and indeed their economies from capitalist world economic fluctuations. But this also meant shielding Chinese and Soviet manufacturers from the competitive pressures that face manufacturers elsewhere.

As long as technological change was slow, this was not a serious problem, but as the pace of innovation has quickened, and industry moves into the age of high technology, this isolation has hindered China and the Soviet Union in keeping up with technological advances. In effect China and particularly the Soviet Union have become the world’s most protected economies; the slower pace of their technological change reflects this. The recognition that without integration their technologies would fall even further behind may explain more than anything else their willingness to ignore the ideological implications of encouraging joint ventures. It also explains the desire of both countries to join such integrating organizations as the General Agreement on Tariffs and Trade, the International Monetary Fund and the World Bank.

The desire for increased involvement in world trade has also led to talk about currency convertibility. In the Soviet Union some have urged that Soviet citizens be allowed to import and export whatever they want. Whereas in the Soviet Union only enterprises can import equipment, in China provinces and large cities, as well as enterprises, have some independence in importing certain amounts of equipment for their local economies. Yet, as China has discovered, any sudden dose of free trade, even if only semi-free, creates serious balance of trade problems. A consequence has been a soaring import bill, trade imbalance and duplicated technologies. Freer trade can also cause widespread factory closings and unemployment as foreign imports displace currently protected domestic production. But if the Soviet Union and China desire to make their economies more competitive, they may have little choice.

VII

The reform processes in both countries are in their beginning stages; it is probably premature to predict their outcomes. Yet it is possible to make some preliminary evaluations. While there has been opposition to the reforms in both countries, both leaders have proven themselves deeply committed to them, specifically the economic reforms. Many observers have commented on the similarities between what Deng and Gorbachev are proposing and Lenin’s New Economic Policy. It is significant, however, that neither Deng nor Gorbachev refers to what is happening as a step backward prior to taking two steps forward, as did Lenin. They do not refer to these reforms as a temporary expedient—they are steps forward, not backward. Yet because so much of what will happen depends on both the physical and political longevity of each country’s leaders, predictions of success are hazardous.

Of the two countries, China has been at it longer and seems to have gone further. General Secretary Zhao Ziyang at the time of the 13th Party Congress in October 1987 predicted that in a few years only 30 percent of the economy will remain under the plan. But even for China the odds in favor of sustained reform are uncertain. Success in China will depend largely on whether or not Deng’s successors are as firmly committed to reforms as Deng is himself and have the same power to carry them out. Chinese officials insist that Deng has effectively moved to replace opponents of reform with supporters. But the fact that Deng found it necessary in January 1987 to remove from the party secretaryship his heir apparent, Hu Yaobang, a man outspokenly in favor of reform, suggests that reform after Deng is not assured. Nevertheless, the changes in the countryside have been so successful that even if reformers do not come to power, it may be very difficult to retreat from the agricultural reforms, short of another revolution. Deng can also point to the development of an embryonic consumer economy as a concrete accomplishment.

What worries proponents of reform in the Soviet Union is that even with the considerably more accepting climate for reform that exists in China, the Chinese effort has had to zig and zag. This suggests that with a population more resistant to reform, the Soviets may be forced to zig and zag even more. Based on the response so far, it is also unlikely that the Soviets’ reform effort will be as far-reaching. In China the economic reforms have allowed individuals and families, especially in the countryside, to carry out their own activities except in areas especially set aside for the party and the state. In the Soviet Union, it is the reverse; decision-making is still reserved for the state unless otherwise specified. The economic domain of the Soviet individual has barely increased; that domain is still very much circumscribed and definitely subordinated to the state.

Nevertheless, the area of intellectual autonomy has broadened considerably in the Soviet Union as well as in China. Both countries have opened their societies to the outside world by encouraging increased variety and frequency of international contacts and exposure to Western ideas. Although only a few hundred Soviet students study outside the Eastern bloc, about 40,000 Chinese students were studying abroad in 1986-87, including 20,000 in the United States. Gorbachev’s and Deng’s calls for democratization, competitive local elections and investigative reporting (glasnost), however, are not meant to produce democratic societies, but to prevent abuses of political power, reduce public alienation and generate public support for their reforms. While neither man is a democrat, these procedures plus a greater openness and introduction of elements of the market have made possible a more pluralistic society which recognizes ideologically, if not institutionally, the possibility of divergent ideas and interests. New styles and genres are blossoming in the arts. Fiction, drama and cinema are delving into hitherto forbidden subjects such as the destructiveness of Stalin’s and Mao’s reigns.

China’s leaders are reinterpreting their Marxist-Leninist orthodoxy in order to sanction their reforms, using such slogans as "it is good to be rich," and declaring in 1987 that China was only in "the initial stage of socialism" in order to justify any form of economic activity—state, cooperative, private, joint venture and foreign. Although Gorbachev has not yet fiddled with the ideology, a number of Soviet and Chinese intellectuals call for more representative government and freedom of speech. Despite periodic retreats and continuing opposition from senior officials, the media and journals in both countries are being allowed some independence. They no longer are merely mouthpieces for the party. Decisions, especially in the Soviet Union, have devolved to editors and away from the party propaganda apparatus. Soviet television and newspapers like Moscow News and the magazine Ogonyek have become forums for debate of opposing views on major issues.

In their efforts to win acceptance of their reforms and counter party and bureaucratic opposition, both leaders have recruited the intellectuals to their side. Deng rehabilitated the victims of the Anti-Rightist Campaign and Cultural Revolution; Gorbachev reduced the number of political arrests and welcomed back from exile such dissidents as Andrei Sakharov. Intellectuals have been given a consultative role in policymaking, especially on scientific and economic matters. For the first time, a professional group, the Chinese Writers Union, was allowed a secret competitive election in 1984 to choose its own distinguished colleagues to head its organization rather than having to accept the party’s imposition of literary bureaucrats.

Yet both Deng and Gorbachev send contradictory signals, especially to the intellectuals. When the patron of the intellectuals, Hu Yaobang, was dismissed, three prominent intellectuals were purged from the party, among them the writer-journalist Liu Binyan, who had been elected by an overwhelming majority of his colleagues to be a vice chairman of the Chinese Writers Union. A few more intellectuals were purged in August 1987 at the very time when China’s leaders were planning the reformist 13th Party Congress. Even though there are some signs after the congress that these intellectuals are gradually being rehabilitated, there is justifiable fear of future purges.

In the same way, the purge of Boris Yeltsin, the reform-minded leader of the Moscow party organization, in November 1987 was particularly disheartening to the intellectuals who had been allowed a degree of autonomy and organizational independence under his jurisdiction. In happier days, Yeltsin had pointed out that during the Brezhnev era his words and actions would have led to his firing. That he was then removed by Gorbachev has to be inhibiting for those who contemplate similar outspokenness. The purge of a number of intellectuals in the Chinese Communist Party and the Hu Yaobang and Yeltsin affairs indicate that the one-party state and its monopoly of political power are still very much alive in both societies.

VIII

Some argue that because of its history and culture, China is more open to a market-type approach than the Soviet Union. This is a subject of enormous dispute, including whether or not one should even make such generalizations. Yet the fact that the reform process has been much more spontaneous in China—beginning at the grass roots even before or simultaneous with proposals for reform—and that it took root among the masses much more quickly than it has in the Soviet Union suggests that however it is defined, China may be a more receptive environment for economic reform than the Soviet Union. In China the peasants in particular, but even the workers and party cadres, have benefited from the reforms, especially from the availability of consumer goods. Soviet economic reforms so far exist primarily as policy statements with few concrete results to show. Given the capital-intensive needs of Soviet society, it will be at least five or six years before Gorbachev can point to significant improvements in the supply of consumer goods and housing to justify his reforms. Without noticeable and continuing improvement in the well-being of their citizens, neither the Soviet Union nor China will be able to sustain their economic reforms.

The nature of economic development in this high technology era also suggests that China, not the Soviet Union, may stand the better chance of transforming itself into a modern competitive economy, despite its lower level of economic development. Under the best of circumstances China has a very long way to go, but in addition to cultural and historic advantages, it also has the demonstration effect of the stunning economic growth of its immediate neighbors and cultural cousins—Japan, South Korea, Taiwan, Hong Kong and Singapore. In contrast to its previous emulation of the Soviet model, with its obsession with "gigantomania"—the larger the better—China, like its East Asian neighbors, is now promoting small-scale as well as large-scale industry. The newspaper Guangming Ribao points out that small-scale industries are more "flexible" and "shock-absorbing and risk-reducing" in the effort to acquire and develop high technology. As yet, the Soviet Union has not acknowledged the need for small-scale industries.

East Asian countries have shown that a policy of import substitution combined with an ambitious program of export promotion can make for rapid economic modernization. Heretofore the Soviet Union and China have focused almost exclusively on import substitution. Labor-intensive operations designed to increase exports have been regarded as exploitative and beneath Soviet dignity. In contrast, the Chinese are now permitting and even encouraging cooperative, private and joint venture sweat operations, ten-hour days, sometimes seven days a week. As unpleasant and degrading as it may be, the Chinese seem to regard this as their comparative advantage. Indeed, this form of manufacturing has already begun to account for significant increases in cheap, although as yet unsophisticated exports reminiscent of their neighbors’ exports of earlier days. This approach has turned out to be a rapid route to higher technology for countries with low levels of development. Starting with simple manufacturing, such as textiles and toys, they gradually work their way up to more sophisticated products like radios and televisions, and ultimately VCRs and computers. It is hard to see how the Soviet Union can duplicate this pattern, or what other route it can take that will bring similar results as rapidly.

Because the Soviet Union and China have embarked on a venture—the rejection of the Stalinist system—not yet achieved anywhere else in the world, not even in Hungary, there is no model or blueprint. It will take experimentation, sacrifice, skill and sagacity. Will their societies and leaders have the patience and ability to persist in this venture?

If the economic reforms can be initiated in the Soviet Union and sustained in China, it could be that the ideological, political and systemic changes that accompany them may be even more far-reaching than the economic reforms themselves. The dimensions of these changes are immeasurable and their implications unclear. They might evolve in fits and starts and even stall, but if the process is not stopped altogether, Deng and Gorbachev may have set in motion phenomena that may make them, rather than Lenin, Stalin or Mao, the revolutionary benefactors of their societies.

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  • Marshall I. Goldman is Professor of Economics at Wellesley College, Associate Director of the Russian Research Center, Harvard University and author of Gorbachev’s Challenge: Economic Reform in the Age of High Technology. Merle Goldman is Professor of Chinese History at Boston University and is completing a book on China’s post-Mao democratic movement.
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