Introduction: Economic Market and Political Market

Summary

The market and bureaucracy are not a gin and tonic that can be mixed in any proportion wanted. There may be a certain level of bureaucratic market restrictions which still allows breath for the market. But beyond a critical limit, bureaucratic restriction cools down the live forces of the market, kills them – and only the appearance of a market remains. And there exists a combination of market and bureaucracy which unites, as it were, only the disadvantages of the two, while the separately existing advantages of both are lost.

Janos Kornai, the dean of socialist economics, wrote these remarks before the collapse of communism in Eastern Europe (1990: 14). His focal concern was the intermittent, largely unsuccessful attempts to incorporate market mechanisms into centrally planned economies in the Soviet Bloc during the preceding two decades. Indeed, the setbacks to such attempts were so severe and widespread that there was a growing consensus that in a partially reformed command economy market forces were unlikely to outgrow and redefine the institutional parameters set by the communist state, much less become the primary driver of sustained economic growth.

China's reform experience since 1978, however, tells a different story. The central planning system, along with strict state ownership, has steadily declined. Markets have grown to become the center of economic activities.