First Published: In Beijing Red Flag
(红旗), in
Chinese, No. 19, 1 Oct. 1983, pages 2-9.
Source of the translation: Foreign Broadcast
Information Service, China Report: Red Flag No. 19, 1 October 1983.
(JPRS 84805), 23 November 1983, pages 1-15. A publication of Joint
Publications Research Service, Arlington (VA), USA.
Transcription/HTML/Markup for marxists.org: January
2024.
Under the guidance of the correct general policy of the CPC Central Committee, great achievements have been made in the past few years on the work of economic readjustment. Some important proportional relationships between accumulation and consumption and between agriculture, light industry, and heavy industry have become more rational. Generally speaking the economic situation is good or very good. However, there are many problems. Some problems are left over from the past and have not been resolved well and some problems have emerged quite recently. Judging from the present situation, readjustment should continue to be implemented within the Sixth 5-Year Plan period up to 1985. The construction of projects in the fields of energy resources, communications, and certain raw material industries is aimed at strengthening the weak links, which involves readjusting the structure of enterprises and industries or coordinating the relationship of proportion. The purpose in doing this is to operate the national economy in a proportionate and planned way. In 1980 Comrade Deng Xiaoping pointed out that, with respect to our economic development, we were seeking a faster and more economical way which suited China's practical situation and "we have paid our tuition fees and sustained some losses, but what is more important is that we are enhancing our competence and capabilities and we have begun to achieve positive results." ("Selected Works of Deng Xiaoping," p 211) To do our future work better, it is beneficial to look back on the path we have traveled in our economic construction so as to sum up and draw on experiences and lessons therein.
In the last 30-odd years since the founding of the country, we have carried out large-scale socialist economic construction and achieved great results which are acknowledged throughout the world. However, for a considerable length of time in the past—due to the erroneous "leftist" guiding ideology—blind pursuit of faster production bent on seeking higher general output value without regard to China's concrete conditions caused three great setbacks to development of the national economy: The first time was from 1958 to 1960, the second time at the beginning of the 1970's, and the third time in 1978. These historical lessons are very profound indeed.
After the 3d Plenary Session of the 11th CPC Central Committee, our party corrected the guiding ideology and enhanced the understanding of the laws governing our country's socialist construction. It put forward the eight- character policy of "readjusting, restructuring, consolidating, and improving," and emphasized building socialism with Chinese characteristics in accordance with China's practical conditions, thus indicating explicitly the orientation of developing the national economy. The 12th CPC National Congress advanced the strategic target of quadrupling the annual total output value of industry and agriculture by the end of this century, and all Chinese are striving with full confidence to realize this target. With regard to ways of fulfilling this task, the CPC Central Committee points out explicitly that in conformity with the principle of seeking truth from facts and acting properly according to concrete times and places, the time for fulfilling the task should be divided into two periods: The first 10 years should be used to lay a solid foundation, and therefore the speed should not be too fast; and in the second 10 years there should be a new period of vigorous economic development, and the speed of development should be somewhat faster—but this speed should differ from the so-called high speed in the past which was sought one-sidedly. At the same time, it is emphasized time and again that the prerequisite is the enhancement of economic results in which the speed is to be sought. In actual practice, different treatment should be given to different regions, departments, and trades. They should not be asked to quadruple their output value without exception, but should be assigned different tasks according to practical conditions, needs, and potential. Some should quadruple their output value, some should produce even more than that target, but some should be given lighter responsibilities.
The general policy of the CPC Central Committee is correct. This correct policy is playing an important guiding role in practice. However, we can also see that many comrades who are doing practical work on the economic front have not drawn enough lessons from past setbacks. From regions, departments, and enterprises there are a number of comrades who, when hearing about quadrupling the output value, think only of the total output value and "high speed," spurring an increase in the number of projects and expansion of existing items. As a result, there were signs in 1982 of expanding investment in fixed assets, causing certain industries to grow too fast and the scope of capital construction to exceed the state's financial and material capability. In this respect, although the CPC Central Committee discovered this in time and adopted measures to make rectifications, this problem needs to be seriously treated and should never be ignored.
An important question is involved here; that is, how to understand and deal with the total output value target. The total output value is one of the comprehensive economic targets and we have to use it in calculating the speed of development. However, this target has great limitations. First, it cannot reflect various changes in economic results such as cost (including depreciation of fixed assets, consumption of raw materials, wages, management expenses, and so on) and profits, If the total output value is sought one-sidedly, the enterprises may be induced to neglect the enhancement of products' quality and the increase of varieties, and to produce products which may increase the amount of output value but not necessarily be needed on the market. Consequently, overstocking of products takes place. In this way the object of "speed" is achieved but no actual increase in net output value is gained, resulting in great waste of precious man-power, and financial and material resources. Second, it tends to cause some enterprises to pay attention to fulfillment of the total output value without regard to enhancing the social economic results of products. Or, in other instances, these enterprises are unwilling to conduct technical transformation and raise the technological level lest they fail to fulfill the target of the total output value. Third, the total output value comprises some repetition of calculation. If constant pressure is exerted on enterprises for greater output value, they may be forced to take advantage of the method of repeating calculations and to make false statements. In these statements for output value submitted in this way, the transfer of value will constitute a large percentage and the proportion of newly created value will be too small. Lastly, high speed, which aims one-sidedly at enhancement of the total output value, will also prompt us to blindly expand investment in fixed assets to increase production capability and pay sole attention to extensive expansion of reproduction. In the past there were instances in which the scale of capital construction was too large and went out of control. One cause leading to this phenomenon was the above malpractice.
The causes of seeking total output value and high speed one-sidedly are manifold in terms of ideology and understanding, decisionmaking, and the economic management system. Because our country has been backward for a very long time, all of us want to get rich and become prosperous as soon as possible and to build more projects, and, in fact, we need to expedite our construction as much as possible. However, only when the needs and the possibility, and the objective laws and the subjective initiative are appropriately integrated can the hopes gradually become a reality. In this regard the following points are especially worth noting: First, proportional relationships exist in various aspects of our economic life. If our work conforms to the requirements of these objective relationships, the development of our economy will enjoy relatively smooth and sound progress; on the contrary, if these relationships are destroyed, even if the "speed" can be achieved for a time, it will eventually stop. The national economy must develop proportionately. True and lasting high speed can be achieved only when the proportional relationships is adhered to. Second, as stated above, the CPC Central Committee's target for the end of this century is meant for the whole country. Therefore, various regions, departments, and enterprises should start from the objective relationships of proportion with the overall situation in mind and plan their own speed of development in a matter-of-fact way. At present we are conducting structural readjustment, but the situation of imbalanced proportion accumulated over a long time in the past has not been changed. For all trades and places to strive to quadruple the output value without classification will inevitably aggravate the state of imbalanced proportion, and another readjustment will have to be made in the end. Some comrades also talk of the proportional relationship but they often look at things from the angle of local regions or local departments, saying that a certain amount of kind of thing is lacking in local units and that the authorities should supply what is needed. If this practice is allowed to go on, the overall proportional relationship will eventually be sabotaged and, as a result, the target of quadrupling the total output value will not be realized. There should be flexibility and initiative in local work, but local interests should be subservient to the overall interests and the national unified plan should not be sabotaged. Third, there was a phenomenon during the past years of construction: When economic development was not smooth or when difficulties were great, we were more modest and prudent and dealt with matters in a relatively matter-of-fact way, and thus we could overcome difficulties in a relatively short time and gradually improve the economic situation. But once the situation made a turn for the better, we often became less prudent, and did not pay enough attention to the study of objective laws. Three big setbacks which took place within the 30-year period all occurred under this kind of situation. These three big setbacks were punishments for the violation of objective laws. We are materialists. Therefore, we must do things in a matter-of-fact way and respect objective laws. So, we must go deep into the practical situation and make investigations to grasp firsthand information. At the same time, modern information feedback systems should be actively established and developed, statistics and forecasts should be further improved, and comprehensive equilibrium should be well effected so our economy and social development plan can better conform with objective practice.
For a long time there have been irrational aspects in our economic management system which prompt various sectors to seek total output value and high speed blindly. For example, enterprises conducted production according to tasks assigned by upper-level authorities in disregard of operational and market needs. Products were distributed or purchased for marketing by the state. Enterprises were eating from the same "big pot" provided by the state without taking any responsibility for profit or loss. Under this system enterprises did not consider the suitability of their products nor did they strive to increase the variety or raise the quality of products. They produced only products which would bring greater output value. Consequently from the standpoint of the enterprises the output value was greatly increased, but in fact the products were just delivered to state warehouses which became overstocked. Therefore, from the standpoint of society no actual economic results were gained. As another example, in the past we made individual plans in accordance with individual conditions, thus lacking inherent connections or comprehensive equilibrium between departments or units. This practice often led to imbalance of proportional relationships. These problems in our system is structure should be grad-ually resolved through structural reform.
At present, adequate determination and control over the scale of construction is still of primary importance for the stability and vigorous development of our economy. We must be firmly resolved, in a matter-of-fact way, resolutely to rectify the tendency of blindly seeking total output value and high speed of development, which has been formed for a long time, so that we can truly meet the requirements set out by Comrade Zhao Ziyang in his "Government Work Report" at the Fourth Session of the Fifth NPC: "To find a new way with more practical speed and better economic results, which can give the people more practical benefits."
Proportional relationships in the national economy have many aspects. In the following discussions I wish to emphasize the proportional relationships concerning accumulation and consumption and also other related problems such as the ratio of the state’s financial revenue to the national income and the ratio of capital construction and other expenditure to total financial expenditure.
The national income is the value newly created within a certain period by workers engaged in material production in the society. Through distribution and redistribution, it is used partly for consumption, satisfying the needs of people’s individual life and the needs of public consumption, which two aspects constitute consumption funds; the remainder, used in various kinds of construction for expanded reproduction and for setting up material reserves, can be termed accumulation funds. The amount of the national income within a certain period is limited. If consumption becomes greater accumulation becomes smaller, thus affecting economic construction; on the other hand, if accumulation becomes too great the people's life will be affected, in which case there will be deviation from the objective of socialist production. Therefore, it is wrong to emphasize any one side. Comrade Chen Yun said that "one is to have enough to eat, the other is to carry out construction," that is to say, both aspects should be taken care of at the same time. Under normal conditions, within a certain period, if the extent of increase of yearly national income is basically identical, and the extent of population increase is similar, then the rational ratio of accumulation to consumption per year within that period will not vary too much. However, the proportional relationship is not static. With the development of production and of science and technology and with the change of the population structure and of the people's consumption custom, the ratio between accumulation and consumption will be different in different periods.
In 1956, at the Eighth CPC National Congress, I delivered a speech precisely on the theme of correctly handling the ratio between accumulation and consumption. Based on experiences gained in the course of implementing the First 5-Year Plan, it was proposed that within a certain period the rate of accumulation in the national income should be brought under control and should be in the region of 20 percent or a little higher. In retrospect, this proposition basically conformed with the practical situation at that time. However, in the course of construction after that, because of aspiration for so-called high speed under "leftist" guiding ideology, accumulation was generally on the high side, especially during several periods of setbacks: from 1958 to 1960 the average accumulation rate was 39.3 percent, with figures for individual years approaching 44 percent; from 1970 to 1976—for 7 consecutive years—'the accumulation rate stood at between 31 to 34 percent, averaging 32.6 percent annually; and in 1978 the recorded accumulation rate was 36.5 percent. Because the accumulation had been too high for a long time, the people's standard of living could not be enhanced as it should. To overcome difficulties under special circumstances it is feasible or even necessary to carry out construction with the belt tightened. But if this practice continues for a long time the initiative of the broad masses will certainly be affected. Furthermore, the amount of accumulation depends not on our subjective wishes but on the amount of the means of production in society (including the amount of possible imports). The foundation of our country is thin and the material supply has been rather tight. If the accumulation rate is too high it will affect current production as well as the people's life, resulting in an overall tense situation in our economic life, with no achievement in terms of high speed in the end.
After the 3d Plenary Session of the 11th CPC Central Committee, the party and the government made great efforts to reduce the size of the capital construction front and adopted various measures to raise the people's standard of living, with the result that the accumulation rate dropped to under 30 percent. Under these circumstances the proportional relationships between agriculture, light industry, and heavy industry tended to be rational, the tense situation in material supply became mitigated, and the supply of certain categories of consumer goods gradually became abundant.
In 1982 the investment in fixed assets increased too much, and the general scale of capital construction was out of control. This happened because funds became increasingly scattered over these years and local authorities, departments, and enterprises, when they have money in hand, do not attach importance to the technical transformation of existing enterprises but conduct capital construction on a large scale. In 1979, the national investment in extra-budgetary capital construction stood at 10.49 billion yuan and it increased to 27.89 billion yuan in 1982. As for the ratio of extra-budgetary investment to total investment in capital construction, it stood at 20 percent in 1979 and rose to 50.2 percent in 1982. Because extra-budgetary investment was conducted in a scattered way and we lacked effective means of control, it was hard to effect an overall and unified arrangement. Various local authorities often started from their local needs and built up processing industries which already had excessive production capabilities. In addition, quite a number of absolutely unnecessary "buildings, halls, guest houses, and clubs" were built. It was difficult to reduce their scope owing to their scattered state. During this period, the central authorities said time and again that the scope of capital construction should be reduced, and as a result the scope of capital construction within the budget has been reduced but the scope outside the budget has been increased. Although the scope of capital construction as a whole is considerable, key items such as energy resources and communications which bear directly on the overall situation fail to score satisfactory results. From this it can be asserted that only with organizational guarantees, definite responsibility systems, and strict discipline can the correct line and the general and specific policies of central authorities be truly implemented.
The present problems are: On the one hand, investment in capital construction increases too rapidly; on the other hand, the increase of consumption funds is out of control to a degree. Since 1979 we have considerably raised the purchase price of agricultural and sideline products and implemented various policies on different aspects of the economy. As a result, the peasants' initiative is mobilized and agricultural production is increasing consistently, resulting in a rapid growth of the peasant income. At the same time the state has adjusted wages several times and universally implemented the bonus system. Furthermore, more than 30 million persons have been assigned jobs. All these measures have brought greater increase in the income of staff and workers in cities and towns. During the 4 years from 1979 to 1982 more than 120 billion yuan of national income was newly added, of which a total of 106 billion yuan went to the pockets of peasants, communes, and brigades as well as staff and workers, accounting for 86 percent of the newly added national income. In these years we have intentionally adjusted the ratio between accumulation and consumption. We think it is necessary for individuals to increase their income a little faster and in fact the increased portion is, for the most part, rational. However, in certain years and in some respects, the speed of increase was too fast. Furthermore, there were shortcomings in our work. Thus, problems did arise in certain respects. For example, some local units purposely lowered the base of grain in their purchasing work and expanded the scope of negotiated bargains at will, thus bringing loss of control over the purchase price of agricultural products. Some enterprises indiscriminately granted bonuses (including material objects) and many units allotted subsidies too generously, all of which moves were obviously irrational. Consequently, in the past few years the rate of increase of consumption funds has exceeded the extent of the increase of the national income and the enhancement of labor productivity. If this situation is to continue, the newly added national income will be used for personal consumption, social reproduction will not be in a position to expand or even contract, and the material basis for a sustained increase of the national income will be weakened or even lost.
In the long run, it will be hard or even impossible for personal consumption to increase under these circumstances. Similarly, determination of the amount of consumption funds depends not on our subjective wishes but on the amount of material for consumption in society. Under the condition that the material for consumption is limited, if individuals receive too much income and the social purchasing power rises too rapidly, inflation will occur, with the result that the broad masses will not gain any genuine benefits from their increased income and, on the contrary, may suffer from it. Therefore, whether in the light of the people's long-term interests or their immediate interests, the increase of consumption funds should be brought under control within rational limits.
At present the economic situation of our country is quite different from the First and the Second 5-Year Plan periods, so the rational ratio between accumulation and consumption should be correspondingly readjusted. According to our past experiences, and with reference to experiences in foreign countries, we once planned to control the rate of accumulation at 25 percent or a little higher. However, because of practical conditions in our economy which call for concentration of funds to ensure key projects, it will be quite difficult for the rate of accumulation to decrease within a definite period from now, and it seems that the rate is best set from 27 percent to 28 percent, with 30 percent as the highest limit. At the same time, we can see that in handling the relationship between accumulation and consumption, our basic work is still not satisfactory; it is hard for us to effectively control the ratio between accumulation and consumption in advance, nor is it easy to effect any adjustments. Therefore, planning and statistics work should be strengthened and forecasts should be conducted with respect to accumulation and consumption funds, so that blindness in doing things can be reduced.
Under the system of planned economy some large-scale construction items, some important scientific and educational undertakings, and some large-scale public welfare undertakings can be arranged and controlled only by the state. Also, funds used in national defense, administration, and other undertakings are to be paid by the state. Therefore, the state has to obtain corresponding funds from the national income. In the 1950's it was once envisaged that financial revenue should constitute 30 percent of the national income, or a little above. However, in subsequent practice this ratio was exceeded. For example, from 1958 to 1960 the average was 40.7 percent, and in 1978 it was 37.2 percent. During this period, aside from 3 years of readjustment at the beginning of the 1960's when the state had to concentrate some more funds to overcome difficulties, other years of overconcentration were due directly to our eagerness to achieve results in economic construction through high accumulation, and were due in part to the financial system in which the state-run enterprises were subject to unified revenue and expenditure supervised by the state. When the state centralized the funds too much, the enterprises have little money in hand and therefore fail to do things that should be done. In addition, the state cannot take care of everything. All this does not benefit the rational arrangement of the proportional relationship between accumulation and consumption.
After the 3d Plenary Session of the 11th CPC Central Committee, we conducted reforms on a trial basis and expanded the enterprises' decisionmaking rights. We practiced a financial system in which central and local authorities took care of their own accounts; thus the situation of over-centralization manifestly changed. But another problem arises, that is, the state's financial centralization became smaller and smaller. With reference to the national income, the proportion of financial revenue constituted 31.9 percent in 1979, decreasing annually to 25.5 percent in 1982 (24.5 percent if the revenue from treasury bonds is deducted). As stated above, of the over 120 billion yuan of the newly added national income in these years, 106 billion yuan went to the pockets of individuals, communes, and brigades. In addition, the enterprises obtained 24 billion yuan. On the other hand, the financial revenue of the state decreased by 7 billion yuan. Financial revenue decreased but expenditure did not decrease, and funds in such fields as science and education had to increase to keep pace with the construction of the four modernizations. Thus, problems have occurred in two respects: On the one hand, the state key projects lack the guarantee of funds and no great achievements can be made in this way. In 1979, capital construction investment within the state budget stood at 41.86 billion yuan but in 1982 it decreased to 27.67 billion yuan. Con-struction in terms of energy resources, communications, and transport depends primarily on state investment. Because of the tense financial situation in 1982, investments in capital construction of energy resources and of communications and transport decreased by 10.9 percent and 16 percent respectively as compared with 1978. If this continues, how can we change the irrational situation regarding the economic structure? On the other hand, financial revenue and expenditure are not balanced. This is a matter of crucial significance. Financial deficit means in effect the arrangement of a portion of expenditure without material guarantee. If not controlled, this situation will cause the supply of consumer goods to become tense, and make the prices of commodities on the market fluctuate, thus affecting the people's livelihood as well as production.
Decrease in financial revenue, and expenditure exceeding revenue, are very prominent problems awaiting urgent solution in our current economic construction. In a certain period from now, necessary measures should be adopted to increase the ratio of financial revenue to the national income from 28 to 30 percent. This proposition seems more appropriate under the present circumstances. At the same time the relationship between the central and local financial organs should also be properly adjusted, so that the major portion of financial revenue can be concentrated in the hands of the central organs. Only in so doing can the needs of the four modernizations be met and some important tasks be accomplished. At the same time local authorities and the enterprises can still retain certain mobile financial power. In this way, the old practice of overconcentration and rigid unification will not be repeated.
There are appropriate ways to accumulate wealth and there are also appropriate ways to spend money. With respect to the financial funds of the state, careful and scrupulous calculations should be conducted as to the amount allotted for social and personal consumption and for accumulation, including the exact ways to use the accumulation portion. The First 5-Year Plan period was for laying a foundation for our country's industrialization. Therefore, of the financial expenditure, the accumulation portion was used primarily for capital construction. According to experience gained at that time, it was once envisaged that the appropriation ratio of capital construction to financial expenditure should be in the region of 40 percent. The basis for this proposition was that once the scale of capital construction was brought under control, the ratio between accumulation and consumption would be administered without much difficulty. But now concrete conditions have changed. First, as mentioned above, investment within the budget was well under control in 1982, with the capital construction appropriation accounting for only 26.8 percent of the total financial expenditure—the lowest percentage since the founding of the country. However, because the funds were overstretched, the accumulation rate was not well under control. This case greatly differed from past experience. From now on the financial authorities should concentrate a few more funds, and the ratio of capital construction investment to financial expenditure should be properly raised, or else the construction of key projects cannot be fully ensured. Secondly, we have now over 300,000 industrial and communications enterprises which form an important basis for further development. However, this basis is. not very sound because the equipment of most of these enterprises is old and technological processes are backward. Therefore, an important task in the future will be to carry out the technical transformation of existing enterprises in conjunction with the renewal of fixed assets, and to expand intensive reproduction. Implementation of technical transformation of an enterprise should depend mainly on its own funds or on bank loans, but financial authorities should render assistance if major transformation projects are involved. In this way, financial funds used in accumulation will have two directions of investment: one is to build new projects and the other is to carry out technical transformation. This is also a great change when compared with the First 5-Year Plan period in which the main focus was on building new projects. As far as technical transformation is concerned, some items may need to carry out capital construction and some may need to partly carry out capital construction. Therefore, when new projects are taken into consideration, careful calculations should be made regarding the total scope of budgeted capital construction. Generally speaking, our funds are quite tense. Even if we wish to increase the proportion of capital construction, the money we can spare is still limited. Therefore, whether new items or technical transformation are to be introduced, we should study the results of investment conscientiously. For this purpose, some detailed work needs to be done well, such as accurate selection of key projects, establishment of rational investment structure with particular reference to problems existing in the structure of enterprises, doing a good job in comprehensive balance in various sectors, and so on.
In short, in our future construction we should pay attention to the following points: First, act according to our capability; second, attach special importance to the key projects; and third, give prominence to gaining economic results.
What we are practicing is planned economy. Planned economy, established on the basis of public ownership of the means of production, is superior to capitalist economy, which is characterized by its competition and an anarchical state in production. However, objective superiority is one thing, and whether this superiority can be brought into full play is another. In the past 30-odd years this superiority was at one time quite evident but at another time was not so evident, or even proved to the contrary in practice. This had something to do with our understanding of the objective world and with our work performance.
Comrade Mao Zedong said in the winter of 1955: "Human beings have developed for hundreds of thousands of years. And in a place like China, only up to the present can we obtain the conditions to develop our own economy and culture in a planned way. Since we have obtained these conditions, the appearance of our country will change from year to year. A relatively great change will take place every 5 years. After several periods of 5 years each, an even greater change will emerge." ("Selected Works of Mao Zedong," Vol 5, p. 250) At the time Comrade Mao Zedong said this we were carrying out the First 5-Year Plan. At that time the economic situation was very good, and we were all very confident, saying with one voice that planned economy was excellent! Afterwards there came the "Great Leap Forward" in 1958, and then several years later saw the emergence of the "Great Cultural Revolution." Because of errors in decisionmaking, the planning work was weakened and sabotaged, resulting in a serious proportional imbalance which entailed repeated readjustments. As a result, some people expressed doubt about the superiority of planned economy. After all, does planned economy work? Our reply is in the affirmative. The superiority of the socialist economic system lies precisely in that it can develop proportionately and in a planned way. It is true that in the past we traveled a tortuous road and suffered great losses. However, it must be clearly seen that our system has a great inherent strength of correcting our own mistakes and overcoming difficulties and hindrances. It is precisely on the basis of this strength that we can, through very arduous readjustment work, make our national economy tide over serious difficulties and step once again onto the path of healthy development. Taken as a whole, our planned economy has still scored great achievements in the past 30-odd years. With respect to agriculture, the cultivated area we have only constitutes less than 7 percent of the total cultivated area in the world, but we have resolved the problem of providing food and clothing to our people who account for nearly one- quarter of the world’s population, and with it we basically satisfy the need for raw materials relating to agricultural and sideline products used for the construction of our country. As for industry, we have basically set up a rather complete industrial system with comprehensive categories, and have established thousands of large and medium-sized key enterprises. By the end of 1982 we had nearly 500 billion yuan in fixed assets and more than 150 billion yuan in floating capital. Compared with 1949, the national gross industrial and agricultural output value in 1982 increased by 1,730 percent, of which the gross agricultural output value increased by 360 percent and the gross industrial output value increased by 5,090 percent. In this period, even though our population nearly doubled the people's standard of living still registered a marked increase, thanks to the relatively rapid development of the economy. This was in sharp contrast to the situation of old China, in which the economic development was long in a state of stagnation and the people lived a wretched life. Of course, if we had not committed those several grave errors in our work our recorded achievements should have been much greater.
The orientation of planned economy is correct and it must be adhered to. It should not be doubted or weakened. As for ways to effect planned economy, we had no experience at the beginning. Over the past 30-odd years we have learned from foreign experiences on the one hand, and have tried to find our way in practice on the other, thus establishing a management system for the implementation of planned economy. Looking at it from the present angle, it is still very imperfect and has many shortcomings, and there are problems on handling of the relationship between central and local authorities, and between the state and enterprises. Although the socialized grand production of our country has had a considerable scale, development is still very unbalanced. In agricultural production, the commodity rate of
agricultural products is still low, and in some places a semi-self-sufficient economy exists. In industrial production, the development of division of labor and coordination is not good enough, and types of marketing and operation featuring big and comprehensive or small and comprehensive management exist. Communications are not good enough, and the means of statistics as well as the means of processing information are universally backward. It is impractical for the state to integrate all the economic activities into a unified plan, and it can only be a major plan coupled with minor freedoms, so that the initiative of various sectors and various economic modes can be brought into full play. Comrade Chen Yun pointed this out as early as 1956 when the socialist transformation of private industrial and commercial enterprises was completed. His idea at that time was: With respect to industrial and commercial operations, operations by the state and by the collective were the main elements of industry and commerce, but a certain amount of individual operations were attached with supplemented operations by the state and the collective; with respect to production plans, the major part of the country's industrial and agricultural products should be produced in accordance with production plans, but at the same time a portion of products should be produced freely according to variations of the market and within the scope permitted by the state plan; and in the socialist unified market the state market should be its principal element, but a free market within a certain scope and under the leadership of the state should be attached. This kind of free market should be under State leadership and supplement the state market, thus forming a part of the socialist unified market.
Unfortunately, at that time and a rather long period after that, this proposition had not been put into practice. On the contrary, the correct thing was repudiated and labeled as a wrong idea, thereby causing some inappropriate methods to become entrenched. This was manifested mainly in the following respects: The first was to make the economic forms excessively unified. In many fields of economic life, individual economy which possessed certain positive functions was restricted too severely on the grounds of cutting "the tail of capitalism," and for a time individual economy was almost completely disposed of; as for collective economy, emphasis was laid on practicing "larger in size and having a greater degree of public ownership" as well as "transition" to the economic system of ownership by the whole people. The second was that all enterprises under the system of ownership by the whole people were all taken care of by the state in the form of unified revenue and expenditure, with all the losses or profits in care of the state, with the result that the enterprises had very little power and accordingly very little responsibility, and therefore they had little initiative to break new ground and were not in a position to deal effectively with variations or problems. The third was that there were no rational rules governing the relationship between central and local organs, with the result that things that should be centralized were not centralized enough, things that should be decentralized were not decentralized enough, sometimes centralization was practiced excessively, and sometimes decentralization was effected without restraint. And the fourth was that the authorities were accustomed to adopting administrative measures in handling matters, and they paid little attention to study of the relationship between supply and demand on the market and did not attach importance to the function of the laws of value, and therefore they were not good at using the economic lever and economic measures to guide development of the national economy and operational activities in the production of enterprises. At times we also felt that there were defects in this practice and once advanced the question of reforming the system, but we concentrated our attention on the problem of the relationship between centralization of power and of local decentralization of power, paying little attention to problems concerning economic forms and the relationship between the enterprises and the state. As a matter of fact, under the guidance of the erroneous "leftist" ideology, it was impossible to solve problems radically in terms of the system. It was only after the 3d Plenary Session of the 11th CPC Central Committee that we truly had conditions for an overall reform of the economic system.
In the past few years some important reforms, especially in the rural areas, have been conducted. The orientation has been correct, the steps have been sound and well measured, and the results are outstanding. In the course of the reform, although some problems such as the excessive decentralization of materials and the uncontrolled handling of consumption funds have emerged which should be duly solved, taken as a whole, the economy has been invigorated through the reform, paving the way for further reform of the economic system. We should sum up our experiences and strenuously continue to explore new ways. In his report at the 12th CPC National Congress, Comrade Hu Yaobang pointed out that "correct implementation of the principle of treating planned economy as the main element and market adjustment as a supplement is a fundamental issue in the reform of the economic system." In accordance with this basic principle, the following problems should be studied and well handled in planning the reform of the system.
The state should effect macroscopic control and guidance regarding the national economy through various measures, such as formulating and implementing economic plans, handling well important proportional relationships between accumulation and consumption and between agriculture, light industry, and heavy industry, stipulating an appropriate speed of economic development, handling well the orientation of development of the large industrial cities or of economic zones with industrial bases as centers, and so on. Some of the targets in the state plan are in the nature of a directive and some are in the nature of guidance, and both are absolutely necessary. With regard to the general scale of investment in fixed assets, key construction items, key enterprises, and important products that have a direct bearing on the national economy and the people's livelihood, the total volume of wages, and other important aspects, plans in the nature of directives must be implemented and controlled by the state so as to ensure their fulfillment, or else it will do harm to the overall economic situation and to the development of the national economy along the path of planned economy. As for other than the above, it is not appropriate nor feasible for the state plan to exert overall control. Directives have a compulsive nature, but they should not resort to administrative orders alone in their implementation; and although guiding plans do not have a compulsive nature, appropriate targets still should be set for their execution, coupled with guidance on policy and requisite administrative intervention by the state. It should also be pointed out emphatically that no matter what forms are adopted in planning, we should be good at utilizing the laws of value and the means of regulating the economy, including taxa-tion, pricing, credit, and so on. Strengthening the function of the means of regulating the economy is not in opposition to, but in conformity with, the principle of treating planned economy as the main element and market adjustment as the supplement. The better the use of the means of regulation or adjustment, the more smoothly plans will be completed. Ours is a socialist economy, and the policies concerning taxation, pricing, and credit are centrally formulated by the state. Therefore, we have full conditions to utilize the laws of value conscientiously and to make use of various means of economic adjustment to achieve our planned targets. As for the production and operation activities of the individual economy and of a considerable number of collective enterprises, to the extent permitted by policies and regulations of the state they should be allowed to conduct production and exchange in accordance with the laws of value and variations in market supply and demand; and as for the state-run enterprises, on the condition that they can fulfill the tasks under the state plan in an all-round way, they can also make some self-determined arrangements in production based on market conditions. That is to say, market adjustment should be practiced. By implementing this method economic work will have a greater capability of meeting different requirements. Of course, spontaneous adjustment by means of the laws of value will not be without a certain degree of blindness in action. However, since the supply of raw materials and the sales of products cannot separate themselves from the state's planned market, the state can control their production and circulation through indirect planning and administration, and can use various economic levers such as pricing, taxation rate, and interest, to guide the activities of the enterprises so that they can gain better results and avoid blunders.
In implementing the economic management system of treating planned economy as the main element and market adjustment as the supplement, there is a great amount of work to be done. This comprises the reform concerning the system of plan management, the system of financial management, the system of material management, the system of commercial management, as well as the management system of prices, credit, and labor wages; in particular, proper methods should be adopted to solve the problem regarding the relationship between enterprises and the state so that state-run enterprises can no longer "eat from the same big pot" and can make greater contributions to the state, and so on. In this respect we still have a great "realm of necessity" before us, and we should conduct studies actively and prudently and gradually accumulate experiences through practice, and formulate feasible plans with corresponding laws and regulations to guide our actions.
Lenin said: "The balance constantly and consciously maintained amounts practically to planning." ("Collected Works of Lenin," Vol 3, p 566) It was only after thorough deliberation that Stalin linked planning to proportionateness, which is a great contribution to the socialist political economics. If we want to do a good job in planning the economy, we must correctly arrange the speed and the relationship of proportion. At the same time, we must, through reforms, make concrete the guiding principle of treating planned economy as the main element and market adjustment as the supplement. Only in this way can we ensure that our national economy develops vigorously, steadily, and healthily.