Economic Reform in the PRC: In Which China's Economists Make Known What Went Wrong, Why, and What Should Be Done About It by C W Borklund

Author:C W Borklund [Borklund, C W]
Language: eng
Format: epub
Tags: Social Science, Political Science, World, Asian, Regional Studies
ISBN: 9780429704826
Google: FiyNDwAAQBAJ
Goodreads: 44598110
Publisher: Routledge
Published: 2019-03-04T00:00:00+00:00

Develop Comparative Advantages, Encourage Competition, and Promote Better Coordination

One of the principal errors of our economic policy in the past was to neglect developing a commodity economy. Every locality sought after autarky, and as a result, there was little interregional trade. This is a petty producer's outlook of a natural economy. It has gravely inhibited the division of labor, the development of a commodity economy, and the exploration of comparative advantages between areas, thus impeding foreign trade.

In the last two years, there has been an expanded experiment in which more power has been delegated to enterprises to make decisions, the market has been assigned a more active role in regulating economic activities, and local governments have acquired some independence in public finance. This policy, however, has posed new problems. On the one hand, enterprises tend to expand their share of the market by breaking up the trade barriers imposed between regions; on the other hand, local governments, worrying about the effect on their revenues, often try to restrict competition between regions and even to deny market access to outsiders. For example, to push the sales of locally produced goods, enterprises and production brigades would be prohibited from purchasing better and less expensive goods produced elsewhere. Some local governments, attempting to raise revenues, ran duplicate projects, made overlapping investments, and even withheld shipments of raw materials to other regions. Obviously, none of these problems is conducive to developing comparative advantages. Nor does the policy conform to the economic principle that calls for maximum output with minimum input. It is for the purpose of redressing the autarky policy of the past and the emerging contradictions of the present that the new policy of "developing comparative advantage" has been put forward. The new policy is to promote competition and improve coordination.

As a rule, every region has its comparative advantages as well as its comparative disadvantages. A correct economic policy should be to produce those goods for which the region has comparative advantages and to not produce, or produce less of, those goods for which the region has comparative disadvantages. To follow this policy, it is necessary to break down trade barriers between regions and to encourage competition. Only through competition can regions reveal their comparative advantages.

An enterprise that pursues the principle of division of labor and produces in large scale can lower costs and win in competition. Thus, competition would compel large and small self-sufficient enterprises to practice division of labor and better coordination. At this very moment, various models of vertical and horizontal integration are under experimentation. The first model pools together all factories producing similar goods into a specialized corporation. For example, the Nanjing Radio Corporation, which manufactures the renowned Panda brand of transistor radios, consists of 38 factories and research institutes. The second model consists of state enterprises incorporated with factories owned by cities or towns or production brigades. The Shanghai Light Industry Bureau, Textile Industry Bureau, and Handicraft Bureau jointly set up 140 different plants in the first half of this year.

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