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7 – More Perfect Socialism—Aftermath & Take-Aways

Module 7 takes a brief look at the aftermath of China’s nightmare with absolute socialism as the nation left 3 decades of death and destruction behind. China’s hardline communist Deep State would not go quietly into that goodnight, though it would go peacefully. But it would take more than a decade for Deng XiaoPing to bring about general acceptance of market reforms, alone. In some cases, old-guard Communists could be persuaded with financial inducements, say, grants of real estate. Others would play more hard to get, but eventually come along. And some would never betray the absolute socialism revolution they dedicated their entire lives to and simply needed to die off before full-scale reforms could be implemented. Deng XiaoPIng, who passed away in 1997 at age 92, simply outlasted them all. Effective implementation of market reforms, on the other hand, would take much longer.

One of the first things Deng did was to open China’s door to the outside world. It had been virtually closed for 30 years, after all, and this was the 20th century. No country could successfully go it alone. He encouraged foreign investment into China to help develop the Chinese economy and encouraged Chinese students to go abroad to help develop the Chinese people. But no doubt, when China opened its doors in 1978 its economy was a 12 cylinder engine that was sputtering along on two cylinders at best. Deng famously announced to the Chinese people of the transformation that lay ahead: “We must cross the river by feeling the stones with our feet.” One good friend, one of the lucky former Red Guards who managed to return to the city and resume his university studies, remarked about the first time he saw a supply and demand curve. ”I almost cried.” He said. “This is right. I said to myself.” He realized that he was finally seeing the truth after a lifetime of lies. “Everything else I’d learned up to then was bulls**t.”’ He said.

The reality is that, quietly, earlier during the 1970s, after the Cultural Revolution had simmered down, small scale market-oriented practices began to spring up in rural areas. Essentially, people began to return to traditional practices. So when Deng XiaoPing introduced “Market Reforms” as he was famous for doing, he was essentially codifying those practices as acceptable, and going much further by encourage market reforms on a larger scale. In 1984 he created a new Special Economic Zone in Shenzhen China, across the border from Hong Kong. It became his “Show Me” experiment with market economics. Within the Shenzhen border, market practices were allowed that were strictly forbidden in other parts of China. Foreign investment poured in and it wasn’t long before rice fields turned into a shiny new city with factories, high-rise buildings and traffic jams. Deng famously went to Shenzhen in 1992 …and with construction cranes turning in the background he publicly reiterated his earlier declaration: “Shenzhen has proven the correctness of our policy.“ And there were no objections. Over the coming years, the Shenzhen model was allowed to progressively metastasized across the nation, creating a burgeoning private and semi-private economy that rapidly grew, progressively supplanting large parts of China’s state owned economy. This transformation from absolute socialism occurred over a period that conveniently breaks into, yes, another 3 decades: The Experimental Phase of the 1980s, the Critical-Mass phase of the 1990s, and the Break-Away phase that started in the 2000s. Over that period China’s economic engine began to run ever more smoothly. Adding a cylinder here and there over these 3 decades before running on all cylinders by the 2000s. And this is the era that I cover in my business book Chocolate Fortunes.

If you want to learn more about this era, I of course recommend my business book: Chocolate Fortunes. It is based on my 8 years working for Nestle and Hershey in China. When China opened its doors to the outside world in 1978 there were a billion people there who never tasted chocolate. Chocolate Fortunes chronicles the inside story of the quarter-century battle between the world’s chocolate companies for the hearts, minds and taste buds of China’s emerging consumers.

In the end, it took three decades of hard work to get China’s economy to a reasonably developed standard, while it took just an initial few years for pure socialism to utterly destroy it. Now, for some final thoughts on socialism. One cannot learn about China’s disastrous experimentation with absolute socialism without learning, as my friend Li once said that: “Socialism is just lying. It is a big waste of time.” One thing is for sure, no socialist scheme ever planned on making people rich. As a parting shot on the subject of socialism, I’ll share with you two opinions. The first one from celebrated Nobel Prize-winning American Economist Mr. Milton Friedman.

The other opinion I’ll share is from an elderly Chinese woman who was sitting next to me on a shuttle bus in Beijing who overheard a discussion I was having about socialism. She simply looked at me, smiled and said: “If people keep taking and taking, and putting nothing back in the end you’ll have nothing.” My response to her was: “Madam, you should be teaching economics at Harvard University. The professors there could all learn a lot from you.”

VIDOL COIN

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