In December 1978, eighteen Chinese farmers secretly signed a contract to divide the collective farmlands into individual parcels, with each farmer agreeing to be individually responsible for their contribution to the state’s agricultural quota in return for the right to farm their parcel the way they saw fit.
They knew that failure to fulfill their government quota might mean an investigation, and if discovered; their arrangement could result in harsh punishments. At the time, Anhui Province was suffering a severe drought, and the farmers were looking for solutions.
This secret act became a symbol of trust, a template for agricultural production and the beginning of a new economic era in China.
It took an immense leap of faith to rebel against government rules. The Cultural Revolution had ended just three years earlier. There could be little doubt in the minds of the signers about the consequences of violating the ideals of the Communist Party.
The fact that these farmers signed their names to a written agreement when they could have done so by oral agreement has been held up as a symbol of collective trust. It also gives an insight into the mindset of doing business in China, as it is clear that written agreements are more binding than oral promises.
In 1980, Deng Xiaoping recognized the extraordinary achievements of the Anhui household contract responsibility system and recommended it be implemented in other provinces. It became a pivotal piece in Deng’s pragmatic approach to developing China’s economy, which mixed socialist ideals and capitalist economics.
By 1983, ninety percent of China’s collective farms had switched to the new system. The results were impressive, agricultural output increased over 65 percent in 10 years, rural labor productivity grew by more than it had in the previous 30 years and China acquired a secure base upon which to build its new economy. Combined with other market-based reforms, rural labor was freed up to work in the new factories, which started popping up along China’s eastern seaboard.
This new system departed from the collective land experiment Mao had instituted, which put ownership of land in the hands of the state. By 1955, all agricultural land was under the control of collectives which managed the lands for the benefit of the people. The system, while great in theory, didn’t always work well in practice.
During the first 30 years, there were a number of difficult years where hunger and even starvation were issues. The issue of land use rights is still part of an ongoing discussion within the party and the public, as the first set of agricultural 30-year land use rights expire and the state starts to issue new rules.
Today, the issues are less about the quantity than the quality of food, environmental concerns and efficient use of arable land. There is still a drive to improve productivity and move the majority of the remaining 800 million rural workers into more productive and rewarding work.
The use of agricultural machines increased agricultural output and productivity, which in turn increased income.
The speed of this upward economic spiral has been phenomenal, despite a number of economic hiccups. But, it is also a reminder that a downward economic spiral can be just as quick.
In talking to Chinese policy makers, it is clear that they question why we in the West are bailing out the institutions and mangers that failed us, in the name of liquidity. They wonder how this is going to help people pay their mortgages, car loans, credit cards and make purchases, especially after they have lost their jobs.
They understand that investment and working capital are necessary, but they see jobs and domestic markets as the keys to a healthy economy. To them, covering the bad bets of our financial institutions as businesses contract and jobs are lost seems like we are throwing good money after bad, something they have had a lot of experience with themselves.
My reply is to indicate that at some point there will be a broadly based economic stimulus plan, probably centered on rebuilding our aging infrastructure, which will provide the jobs necessary to straighten out our economy. However, in the meantime, we will need to be able to support part of our economy with export growth.
They remind me of something that seems forgotten that the strength of our domestic economy is our most important and influential asset. By the time this post is printed, the United States will have a new president. May that person have the wisdom to take a pragmatic view of what we need to do as a nation.
