Policy ethnography

and conservative transition

from plan to market
The construction of policy rationalities and the
intellectual limitations of leading comrades
Adam Fforde
Asia Institute, University of Melbourne, Ivanhoe East, Australia
Abstract
Purpose The purpose of this paper is to illuminate change processes in Vietnam, China, and the USSR.
Design/methodology/approach Policy ethnography may be used to examine the emergence of
policy rationalities that may or may not be locally feasible. Through the use of a conceptual heuristics
to interpret practice, this paper contrasts approaches in the development of conservative transition
rationalities suited to the shift from plan to market whilst retaining a ruling Communist Party in
power. Comparison is made between Vietnam, where a successful conservative transition occurred,
and a failed policy experiment in the Soviet Union. The discussion extends to China, where, as in the
case of Vietnam, a policy-oriented policy rationality of transition may be observed.
Findings Through the use of a conceptual heuristics to interpret practice this paper, contrasts
approaches in the development of conservative transition rationalities suited to the shift from plan to
market whilst retaining a ruling Communist Party in power. Comparison is made between Vietnam,
where a successful conservative transition occurred, and a failed policy experiment in the
Soviet Union. The discussion extends to China, where, as in the case of Vietnam, a policy-oriented
policy rationality of transition may be observed.
Research limitations/implications Further research into the development of conservative
policy rationalities in other context is advised.
Practical implications The paper concludes that attaining a successful heuristics amongst policy
consumers is likely a necessary condition of a managed conservative transition, and that this
heuristics does well to dene system changes as a process, rather than a discrete step, in constructing a
cognitive basis for policy rationality.
Originality/value The paper consistently avoids realist arguments about policy, which would
suggest judgments as to whether policy is correct or incorrect, and focuses upon the creation of
policy rationalities.
Keywords Policy, Marxist economics, Transition management, Economic reform, Ethnography
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0306-8293.htm
This work owes thanks to many, especially the late Suzanne H. Paine and Michael Ellman. The
author acknowledges the stimulating multi-disciplinary environment at the NUS SEA Studies
Programme, and especially discussions with Mike Montesano; colleagues at the Economics and the
Political and Social Change Departments at ANU, especially George Fane; and also David Marr and
Melanie Beresford. And discussions with a range of Vietnamese economists over the years,
especially Professor Phan van Tiem, Tran Phuong, Tran Viet Phuong, Dao Xuan Sam and in
particular Phan Quang Tue. Thanks also to participants in a Seminar at the Economics Department
of the University of Melbourne, to the Melbourne Institute of Asian Languages and Societies, and
various anonymous referees. Mistakes remain the authors.
Ethnography
and conservative
transition
659
Received May 2008
Revised September 2008
Accepted September 2008
International Journal of Social
Economics
Vol. 36 No. 6, 2009
pp. 659-678
qEmerald Group Publishing Limited
0306-8293
DOI 10.1108/03068290910956903
Introduction: understanding transition why? The issue of policy
rationality
Expressed with suitable rhetorical punch, the transition from plan to market[1] means
getting rid of the plan and replacing it by the market[2]. It follows that whether the
process is rapid or slow, whilst it exists plan and market will co-exist. Big Bang
rhetoric common in Eastern Europe during the early 1990s sought to paint a picture of
transition so rapid that it could be ignored by comparison with the end-point. This had
obvious implications for policy rationality. Yet, it seems hard to avoid the position that
all social change exists in real time, so this is really simply a matter of degree. So, what
is the fuss about?
The contrasts among the histories of Russia, Vietnam, and China since the end of
the 1980s are stark. To put it one way, we have on the one hand economic turmoil and
the joys of Russian presidential democracy, and on the other rapid economic growth
and continuing one party rule. To put it another way, we have on the one hand the
possibility and in part the reality (currently muted) of political freedom and a real
capitalism, and on the other endemic corruption rooted in the close involvement of the
party-state in business, combined with the political brittleness of unreformed Leninist
politics. This paper explores how the transition from plan to market could be construed
and so become part of a policy rationality. This has many aspects.
The one I focus upon suggests that the conservative nature of transition in
Vietnam and China has two sides to it: rst, that the regime did not change; second,
that what was fundamental to the ways in which the process was understood by
participants and inserted into policy rationality was the relative stress placed, not upon
the forces pushing towards the market, but those restraining that process, whilst not
corrupting its essential direction, which was to the extinction of the planning system.
This construal had important policy implications. It is brought out by examining how
a transitional economy, within which plan and market co-exist, could be understood in
terms of the fundamental structural distinction of transaction types.
This view, like that of some Vietnamese economists of the 1970s and 1980s, thinks
in terms of the division between planned activities and those outside the plan,
intended for markets, which can occur within as well as outside economic units such as
Vietnamese state owner enterprises (SOEs) (de Vylder and Fforde, 1996; Fforde,
2007)[3]. It is therefore dened with reference to the central policy problem of transition
and so abandons other possible denitions that shift analytical and so policy focus
away from this central task.
Why and how could this be so successful by comparison with the Soviet Union?
Note that all SOEs were legally permitted to participate extensively in markets by
decree 25-CP of early 1981, rights not granted to all Chinese SOEs until a few years
later, and never granted under party rule to Soviet SOEs. I argue that this construal
added powerfully to the dynamic of conservative transition by acting as a basis for a
locally developed policy rationality.
I do this in three ways.
First, I examine evidence for Soviet explanations of the failure there to embark upon
a conservative trajectory similar to that in China and Vietnam. I argue that central to
this was the issue of pace, a policy rationality a sense of the interactions between
policy and economy and I relate this in turn to the endogenous nature of transition
implied by a view of it as a process.
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Second, I examine western literature on centrally planned economies (CPEs) and
aspects of market relations within them, especially attempts at formal modelling.
I conclude that these approaches by contrast tended to downplay the plan-market
balance, its possible endogeneity and so this question of pace. This literature therefore
tends to ignore the central policy problem that of transition and so fails to offer a
platform for a useful policy rationality.
Finally, and centrally, I explore how an economy in transition to the market may be
construed in terms of an endogenously set equilibrium between plan and market. Other
work suggests that this was in fact central to some Vietnamese economic thinking
(Fforde, 2007). It follows that management through development of suitable policy
rationality of the transition may require attention here as elsewhere to policy impact,
and so to a sense of endogenous process.
One characteristic of the Chinese and Vietnamese transitions was that they
were legally expressed in terms of a transitional system[4]. This is to say that they
were formally recognised by policy as processes. Chinese twin track pricing or the
Vietnamese equivalent three plan system can thus be accessed through the
normative documents of the party and state. Further, these formal transitional systems
had as their basic intellectual foundation a co-existence of plan and market, and were
therefore clearly potentially transitional systems.
Conservative transition: product or process?
Conservative transition? Whether one likes it or not, comparisons are made between
the China and Vietnam, and the severe problems facing many of those other countries,
also at one time advocating central-planning, that launched their transition from plan
to market on the back of major political changes: typically, democratic election of new
governments. Often, there thus appears to be a trade-off bitter though this may
seem between political and economic progress. Communists who continue to rule
China and Vietnam often allege the value of political stability, seeking legitimacy
through economic success, positive social indicators, and, it must be said, political
relaxation compared with earlier hard line times.
Yet, one strand in academic analyses of the Chinese and Vietnamese transitions
stresses, not the dominant role played by policy, but the strongly spontaneous, or
bottom-up forces. That these processes took time (typically around a decade)
suggests also that it is useful to examine further the conservative nature of policy: that
is, how policy sought to support the plan whilst it legally co-existed with expanding
markets. The balancing act may therefore be seen as one where reformers could
present their thinking in terms of the process itself, rather than the discrete shift from
plan to market: the object of policy would, then, not be the (likely politically unwise)
goal of a market economy, but rather managing the process of transition. This could be
understood in some theatres to entail its end-point (a market economy), but also
presented elsewhere as something else entirely: not transition at all, but (for example)
improved plan implementation.
Further, in protecting such processes from other types of political conservatism,
such as hard line ideologues, a useful conjuring trick could be to present marketisation
as a discrete step rather than a system-change and so as non-threatening and
positive[5]. The extent to which this would require reformists to actually understand
what was happening is intriguing.
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This paper attempts a path into this tangle: examination of an understanding of
the economic dynamics of a country where the transition from plan to market is, in the
main, driven by endogenous processes rather than policy. Thus, in such conservative
transitions, rulers appear granted opportunities to gain credit from accepting
the direction in which events are progressing: by moving back, albeit slowly. How
can they be convinced to do so? Here, I contrast apparent success in policy
development in Vietnam and China with apparent failure in the Soviet Union.
A Soviet viewpoint
In the fascinating collection of insiders studies of the Soviet Union edited by Ellman and
Kontorovich (1998) can be found intriguing descriptions of what looks like the early stages
of the emergence of the market from within the plan. In the crucial Chapter 5 Early
attempts at change, 1983 to 1987, we read that the internal political developments of 1984
amountedto apower vacuum (EllmanandKontorovich, 1998, pp. 100-101). This ledtothe
establishment of a Politburo Commission for the Improvement of Economic Management
intended to act as the key body from which conservative reform could emerge.
It was tasked to produce a Concept, a policy document, though with little direction
from above, and the drafters (Gostev, Sarkisiants and Prostiakov Ellman and
Kontorovich, 1998, p. 102) confronted the need to manoeuvre between the inviolate
and the mutable aspects of existing socialism (Ellman and Kontorovich, 1998, p. 103;
Beresford and Fforde, 1999)[6].
Now, the pros and cons of conservative transition are clearly political and emotive
issues. For example, when would a presentation of a rationality of such a transition process
to a repressive regime be ethically acceptable? Indeed, some political tendencies would wish
to deny the validity and rationality of such processes, preferring, through a Big Bang
solution, to support the fundamental regime change of a shift to truly democratic elections.
These are big issues, and rightly so. It is striking, for example, how parts of the literature
seem to ignore the activities of reformers such as Prostiakov and others (Aslund, 1989).
I do not here attempt a comparative review of these and other histories. My focus
here is to examine an attempt to devise a policy rationality that could have become a
reform strategy.
Central to the concept developed by the three Soviet ofcials was the requirement
that state ownership be preserved, whilst private property without the use of hired
labour was to be permitted. Cooperatives and individual labour were to add economic
exibility and so attain higher economic efciency in the absence of small and medium
enterprises. Crucially, although the leading role of the plan was to be preserved, the
proportion of state orders was to be reduced and a signicant share of output was to
be determined by contracts between buyers and sellers (Ellman and Kontorovich,
1998, p. 103). This injected elements of the market into the system, which would have
been regarded in 1965 as capitalistic (Ellman and Kontorovich, 1998, p. 104).
In Prostiakovs account, the policy document was presented to top leaders, but had
no discernable impact, mainly due to the lack of professional training and experience
required to grasp the subject (Ellman and Kontorovich, 1998, p. 104). This suggests
for me, though, that these reformers could have also failed to present their policy ideas
in a form that the top leadership could understand; perhaps in that they were presented
in abstract terms as a policy blueprint. An alternative could have been to base
arguments upon reality experiments.
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Yun, in the same chapter, indeed describes such a large-scale experiment begun in
1984. It grew from failed attempts at reform to improve planning dating from 1979
(Ellman and Kontorovich, 1998, p. 109). It sought to enhance enterprise autonomy in a
number of industries, basing enterprise evaluation upon contract fullment (Ellman
and Kontorovich, 1998). It was interpreted as showing positive results, especially in
terms of resource utilization, but was evaluated as an experimental system [still
possessing] certain aws (Ellman and Kontorovich, 1998) and little followed from it
either in terms of transition thinking.
Prostiakov and Yun draw the same conclusions: rst, there was scope for improved
economic performance within the existing planning system; second, the subsequent
system collapse was largely due to the failure of the Gorbachev/Ryzhkov leadership to
understand the feasible trajectory of reform; impatient for rapid results, they crashed
the system.
To quote Prostiakov:
The impatience of the rulers refected their failure to comprehend the inertia inherent in
economic processes. Instead of waiting patiently for the results of the experiment and
subsequently adjusting the economic mechanism, the leadership would alter the rules of the
game without really analysing the results of the experiment or giving enterprises a chance to
adjust to the new conditions (Ellman and Kontorovich, 1998, p. 113-14).
What is crucial about these statements is how the issue of pace was presented: in
the reformers view, transition was viable, understandable in terms of the
introduction of markets into the existing system (such into SOEs), and had a
natural knowable pace to it.
This is the common world outlook of social scientists: belief in the existence of
knowable regularities akin to natural laws that determine social processes[7].
Further, though, it was their considered view that the leadership simply did not
understand these laws. Do we see here embryonic transition theory, believed to be
rooted in law (in a social science sense)? But what actually would be the likely
rhythm of change? Fast, slow, one year, ten years? This is not so clear.
On reection, a number of signicant points emerge. First, whilst these ofcials
blame the top leadership for their lack of understanding, how this could have
happened? How indeed could an understandable conservative reform model have
been articulated? That is, a transition model that accepted the presence of vigorous
market transactions within a socialist system and kept them (all?) in power without
threatening ideological attacks. Had such a policy rationality been successful, then
things could perhaps have been very different. By comparison, the Chinese and
Vietnamese approaches seem easier to understand, and they formally accepted a far
greater role for markets, keeping to the simple plan-market dichotomy[8].
Second, no part of this story refers to Chinese or Vietnamese experience, and Soviet
policy development seems to have been occurring in relative vacuum. Chinas
transition model came in around the same time as the Soviet discussions above;
however, in Vietnam, a Soviet client receiving a large military and economic assistance
program, legal self-balancing by all SOEs (both central and local) was approved by
decree 25-CP in January 1981 (de Vylder and Fforde, 1996). Here, policy presented
markets as a way of loosening up the forces of production at the base, yet the minor
pole in their dichotomous relationship with the plan, which, so the song was sung, had
to retain primacy.
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Finally, despite their problems in constructing an acceptable policy rationality, the
fundamental aspect of conservative transition as I have dened it seems to have been
totally clear to these Soviet advisers: the acceptance, in a planned economy, of vigorous
markets, which would grow over time and improve economic performance (e.g. easing
consumption and distributional tensions, thus making it easier to secure support), and,
centrally, nish in the extinction of central planning. It is therefore possible to imagine
that there are aspects common to the heuristic required, with different contexts in these
countries and so of course different results.
This seems clear; but, of course, not then something to be shouted from the rooftops.
Implicit inthis is the viewthat conservative transitionwas possible: the process couldstart
without fundamental political change and the positive results of trials showed this. The
failure was thus the inability to devise policy that could show leaders of the Communist
Party of the Soviet Union a way forward that would not (as they argue) lead to frustration,
a desire for rapid change, and a crash to the system. The key aspect of the transition
systems introduced by the Chinese and Vietnamese was thus their conservative nature:
when the key was simply to accept getting out of the way of markets, policy rationality
needed to help management of the process by slowing it, whilst accepting manifestations
of it such as SOEparticipation in markets. Typically, at micro-level conservative localities
and SOEs would be pushed forward on the road to marketisation, whilst the more
advanced would be criticised and slowed. Conservative transitions are thus conservative
in two ways: rst, they preserve the regime; second, they slow marketisation.
This suggests in turn that there necessarily dening element of a heuristic
transition policy is coercion. That is, that the plan be identied as coercive, in
comparison with the relative freedoms associated with the market. This then suggests
that the basic structural division of the transitional system be founded upon
transaction type, with plan transactions identied and construed as fundamentally
different from markets: the element of compulsion underpinning these contrasting with
the relative autonomy of market-based decision making.
Understanding transition
Basing policy upon this basic division has, apart from its punch in relevant policy
debates, a number of intellectual advantages. Fundamentally, though, ideas that can be
developed into a transition model, granted authority by their being based upon
knowable (and valorised) social science, is a normal way for reformers to proceed.
Here, it provides, in the degree of marketisation, a gauge of the distance travelled on
the road to the market economy (equal to the inverse of the extent to which
central-planning is still evident). This can be concretized into facts, such as the
degree of self-balancing (the extent to which an SOE derives its inputs from market
activities). And, it allows the process to be treated as endogenous, facilitating
attribution to it of qualities of being objective and law governed, so that
conservative arguments can be attacked on the grounds of their evident irrationality
and naivety. It requires that policy be seen as acting upon the economy, thus moving
away from totalitarian denitions of the state. And, it can generate data showing that
the market is better.
The rationality of this is far from simplistic, and interesting and worth exploring.
I present below a simple analytical model that captures these basic elements of the
structural dynamics of endogenous processes of transition from plan to market.
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This implicitly lays out what could have been learnt or conjectured by conservative
reformers. It bases its economic analysis upon the fundamental distinction between
transaction types. Before I do this, however, I discuss some of the western literature
relevant to modelling CPEs. These show that they are not very relevant to the basic
issues involved in developing a conservative transition policy rationality, in that they
do not easily generate ideas relating to process. This is interesting.
Formal analysis of plan-market interaction the literature[9]
Introduction
For relevance to conservative transition, the core analytical problem is the analysis of
marketisation, its essential characteristic, or what Naughton (1994a, b) calls the
growing out of the plan the emergence of markets from within a system where
private access to state capital assets is, in any normal sense, limited. Western
academic literature has not shown much interest in this topic. Conservative
transition is, perhaps, not attractive. Also, though, until the early 1980s, there was
little to study that was not clearly stillborn and subject to the coercive pressures of the
party: the focus was rather upon studying CPEs as such.
It is worth pointing out, though, that, as Stalin recognised in his Economic Problems
of Socialism in the Soviet Union, from at least his ideological perspective the law of
value operated in a planned economy. After the U-turn during collectivisation, which
introduced the private plots into collectivised agriculture, the market legally
co-existed with the plan. Yet, and bearing in mind the sheer brute political power of
Stalinism, collective farmers sales of produce onto the kolkhoz markets was not easily
presented in public as (nor be) a positive rst step on the road to a market economy.
The relevant western literature has three relevant and useful strands to it[10]. First
are the more qualitative analyses of CPEs that focussed upon Central Europe and the
Soviet Union. Kornais work is central here. A second strand models mechanisms, such
as the so-called price scissors, rationing and coercion, assumed fundamental to CPEs.
This goes back to the disequilibrium modelling introduced by Barro and Grossman,
and seminal work by Sah and Stiglitz (1984, 1992). A third strand, closer to that
developed here, models approaches to liberalisation where plan and market coexist
(Lau et al., 2000).
Kornai and shortage
The rst strand focussed mainly upon developed economies, and tended to ignore the
potential for endogenous change. As such, its policy-relevance in the terms used here is
clearly limited. The generation of wage and price incentives adverse to the planned
sector of an existing socialist economy was however studied (somewhat indirectly) in
the context of macro-economic disequilibrium and suppressed ination. Thus,
Ericson (1984) examined the effects of the Second Economy on the economic
efciency of intermediate-product distribution in state industry. This ignored the
potential of market-oriented production. We can already see, though, the way in which
basing the structural division of the economy upon property forms (state/non-state)
clashes with relevant policy issues such as the treatment of markets within SOEs.
Kornai (1980) provided a persuasive analytical framework for microeconomic
behaviour in CPEs. His analysis of behaviour, stressing managers rationality, keen to
do their job, provided a microeconomic notion of shortage quite different from that of
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the disequilibrium econometrics, discussed below, which tended to show that there was
usually no aggregate shortage.
Yet, the crucial element missing from his work for present purposes is the lack of
any treatment of the possible structural consequences of these problems in other
words, the implications of a substantial outside economy (though see Ellman and
Kontorovich (1998, p. 301) citing Freinkman on the extent of market exchange within
the planned economy). Kornai (1980, pp. 15-16) ignored the petty commodity-producing
sector and assumed that commodity production within SOEs was irrelevant. This
ignores the possibility of an endogenous shift from plan to market. The reasons for this
are simple, obvious and in his context plausible the comparative absence of levels of
economic activity in outside sectors of any great magnitude, and the lack (when he
was writing) of any obvious historical episode where such a change could be seen to be
heading towards a market economy. Yet, this meant that this seminal work tended to
be of limited use to developing policy suitable for conservative transition.
Macroeconomic disequilibrium
The secondstrand was largelyderived fromseminal work byBarro andGrossman (1974),
a paper concerned with disequilibrium problems in a labour services consumable
commodities fat money model, and focused upon household behaviour rather than
structural change. They then went on, with scholars such as Richard Portes, to estimate
aggregate models and examine whether such economies were characterised by aggregate
shortage or not. Again, there was no signicant interest in production for the market
within SOEs.
Other writers emphasised the variety of market-type relations in the Soviet Union
(Katsenelinboigen, 1977a, b) but tended to ignore the potential dynamic effects. Thus,
Katsenelinboigen NATO concentrated upon the potential disparity between income
generation and sales of goods to state employees as a source of inationary pressures. But
this, by limiting the effects of the inationary process to the consumer goods area
(Katsenelinboigen, 1977b, p. 101) only examined the potential of the free mass of money
as a source of potential [. . .] galloping ination (Katsenelinboigen, 1977b, p. 104).
Sah and Stiglitz (1984) model a basic structure of state and peasantry, who
exchange goods, so that the effects upon the state of changes in the price scissors the
relative price of peasants and state products can be discussed. This comes down to
the supply conditions for wage goods, or rather the food peasants produce, since state
workers obtain food through a single channel the state. The structural division in the
model is thus, essentially, technical in nature. Changes in incentives lead not to changes
inresource allocationbetween plan andmarket but to changes inoutput. Further, the
state controls all prices, maintaining the idea that the basic structural division of the
model is technological[11].
A similar approach is taken in Sah and Stiglitz (1992). Baland (1993) then criticised
Sah and Stiglitz on the grounds that they assumed market equilibrium, arguing that
coercion would be needed. This shifts the focus back towards the incipient
disequilibrium stressed by the rst strand above. Again, though, the focus was not
upon structural change in the transitional plan-market sense, but upon
inter-sectoral relations when the sectors are understood technically. Again, there is no
dual pricing, nor are there private plots, which could underpin as real institutions the
abstractions of models that focus upon transaction type. Knight (1995) remains within
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this fundamental structure. He assumes that there is no movement of labour between
the sectors (Knight, 1995, p. 117).
Sun (2001, p. 195) grapples with the analysis of rationing of industrial goods in the
rural areas, and concludes that the price response of agricultural surplus cannot be
determined theoretically. This points towards examination of interactions between
plan and market viewed in terms of transaction types. Sun renes problems with the
original Sah and Stiglitz paper down to two main issues. First, were the effects of
changes in industrial inputs supply upon agricultural output. This responded to the
issue that collectivised agriculture was often said to receive large and expensive
resources from the plan, that is, from state industry. Second, were the effects of
rationing (Sun, 2001, p. 196). Sun, though, then extended his model to include
production and trade of non-agricultural goods within the rural sector. In the urban
sector, also, he had non-state producers of industrial goods that can [. . .] [be]
effective substitutes for major industrial consumer-goods (Sun, 2001, pp. 196-7).
This, then, starts to offer a model better suited to conservative policy rationality.
Sun insightfully points out how these issues also arose in the Soviet Union prior to
the FYPs.
Sun then goes to the root of the problem: what is to be the fundamental basis
for dualism? Whilst for Sah and Stiglitz this is essentially technical, Sun points out
that for Preobrazhensky it had been the distinction between the socialist sector on
the one hand and the capitalist sector, including the so-far uncollectivised
peasantry, on the other. Sun (2001, p. 210) argues the importance of considering the
role played by coercion, and not inter-sectoral relations as measured by the price
scissors.
This points the analytical framework away from a technical basis for modelling and
towards the focal point, coercion, and so to ideas that would be relevant to development
of a policy rationality that focuses squarely upon transition as process. We now look at
Western attempts to model twin track systems whose foundation is indeed
transaction type and so appear more relevant[12].
Dual resource allocation mechanisms
The nal strand in the literature explicitly models Chinas dual track approach to
transition (Lau et al., 2000). This follows, far more rigorously, a similar approach to
the rationality presented below, but with one extremely important distinction: the size
of the planned economy is taken as exogenous, set by planners. Lau et al. are concerned
to assess whether introduction of market relations into the state sector is Pareto
optimal and can generate increases in output sufcient for compensation of losers. The
underlying political assumption assumes a situation where losers may need to be
compensated, for example, to avoid blocking manoeuvres[13].
This assumes that the main redistributive issue is related to income transfers
between production units. However, transfers within units may be crucial, implying a
division of the activities within an SOE on the basis of transaction type. I will not here
do more than suggest in passing that this must have implications for the way in which
classes emerge, which may be of interest to policy consumers keen to ensure their own
positions post-transition.
Further, this focuses upon policy as the main source of change, with implications
for how the state is construed[14]. It assumes no competition for resources between
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plan and market: what they refer to as the plan track can be enforced by planners as
they wish (Lau et al., 2000, p. 132), although they recognise potential difculties here
(Lau et al., 2000, p. 134)[15].
Conclusions
There are interesting limitations to the relevance of the western literature. It sidesteps
in various ways and with varying intent issues crucial to the development of powerful
policy positions suited to conservative transition.
These stem from two main issues.
First, the decision not to base models structural characteristics in the shift away
from transaction types based upon the coercive force of the plan and towards the
constrained optimisation of the market.
Second, the absence of ways in which the plan-market balance could be construed as
set endogenously, thus closing down opportunities for discussing with contemporary
political leaders issues such as pace the idea of conservative transition having a
rationality, modellable and law-governed[16].
Western economic theory argues that the decentralised decision making of
market economies is crucial to their superiority; Ellman (1989) argues that CPEs
failure to cope with the informational problems involved in planning explains their
economic weakness. Thus, whether a peasant can sell on the market or not, is vital;
whether a state factory worker has access to cash that allows them to cope with
high-market prices, or not, is fundamental. For both, those who have the cash have
far more in common, and are more likely to be shot or tolerated depending on the
regime style, than those who do not. And, they are the future. This means
conceptualising, as Sun (2001) starts to do, not in terms of dualities that have a
technical basis, such as agricultural peasant and industrial worker, but in terms of
coerced and un-coerced, plan and market different ways of transacting, of
accessing and using resources. From this point of view, the literatures focus
elsewhere is surprising.
Most economic data for CPEs was expressed in terms of technical or ownership
distinctions. Although there is data, for example, on retail trade divided into the
organised and unorganised markets, this provides only limited insight into
aggregate measures of the plan-market relationship. Thus, an understanding of
transition based upon transaction type would look for its empirics, not at aggregate
data, but at various micro stories and ad hoc surveys. As the thinking developed, these
would be expected to generate better data.
By the end of the 1980s, I believe that Vietnamese reformist economists had
developed a conception of what had been happening. As a long-time Vietnam
watcher, I have been struck by how this was often dismissed as pragmatism by
many western observers. Based upon a range of studies (de Vylder and Fforde, 1996),
I now present a discussion of plan-market interactions in an economy where the basic
structural division is that between transaction types, and show how this offers a viable
rationality of law-governed (in the social science sense) determination of the plan
market balance, thus of transition itself and so offering potential for the construal of a
policy rationality suitable for conservative transition. The point of doing so is simply
to show that it can be done: that it has persuasive power and policy relevance,
fundamental to any policy rationality.
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An analytical model based upon transaction type
Introduction
Central to the models structure is an economic dualism based in the difference between
planned (i.e. socialist) and unplanned (i.e. non-socialist) sectors. Extinction of
planned resource allocation means their replacement by markets: therefore, this
fundamental characteristic directly models transition.
This distinction implies, for example, that market-oriented activities within SOEs
are as aggregated with production for markets on cooperative farmers private
plots, and residual non-socialist petty producers. Together, these make up the
market nonsocialist sector. This refects their shared confrontation with
the coercive aspects of the plan, and the general sense of planners that these activities
should be subordinate to the plan. Conversely, planned activities, that is, resource
allocation based upon administrative orders, synonymous with coercion, are
aggregated into a socialist sector.
This is consistent with the idea that the distinction between socialist and
non-socialist is at root to do with transaction type: plan vs market[17]. As the
plan is replaced by the market so socialism is also replaced. I am, therefore, using
socialist sector as a synonym for the planned economy, and non-socialist sector as
identied with market-based economy.
The key relative price is therefore that between the values of a good as valued by
the plan and as valued by the market.
What distinguishes this approach from Lau et al. who also at root treat this
distinction as fundamental, is that levels of plan activity are not set by planners, but
endogenously via the internal logic of the model. Fundamental to this is the robust
assumption that non-coercive market-oriented activities are usually more attractive,
and for two reasons: they are more efcient, and they permit local appropriation of the
benets that follow from them[18]. Coercion is, precisely, needed to offset this.
The natural tendency of the system without coercion is towards marketisation.
For simplicity, it is best to link this core relative price to something relatively
accessible, and so the analysis is presented in terms of competition between plan and
market for labour effort. Workers allocate labour effort between plan and market
in accordance with relative rewards. This simplication makes the model easier to
present. Behind this, though, labour effort could be interpreted as a proxy for all
resources that are mobile and can be used in either plan or market.
The model thus takes account of the fact that whilst jobs in the planned activities of
CPEs were highly attractive and keenly sought after the amount of labour actually
supplied was often low compared with market conditions.
The model thenfocuses uponthe real value of wages inthe socialist planned sector.
These can be spent upon wage goods either supplied on ration or bought through the
market. The real value of wages is then inuenced by the relative price of these goods.
It can be shown that so long as market prices are above xed state prices the response in
terms of labour supply will not be strange.
It is enough, in looking at the plan-market balance, to look at that part of the
economy that includes the socialist sector and that part of the non-socialist sector that
delivers inputs to it: wage goods, for simplicity. As the market grows, it is the way the
plan shrinks that is central the model does not need to cover total economic activity,
in a national accounting sense. Non-socialist activities, aimed at the market, are then
Ethnography
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relevant in so far as they compete with the socialist sector (dened as above to mean
planned activities within SOEs and other units such as producer collectives rather
than their total output) for resources. The concern is to investigate plan-market
interactions and so provide support for a policy rationality.
Plan-market interactions and the monetary economy
The plannedeconomyhas a range of interactions withmarkets. Planners buylabour effort
andtheysell rationedwage goods, andmayeffect the level of market prices. The monetary
decit of the state, accumulated over time, will equal a money supply (with adjustments
for wear and tear, markets use of other media of exchange and stores of value such as gold
and dollars and so on). This money supply will be used to facilitate, not only planned
production for rationed sale to state workers, but also to nance transactions within the
market economy. At its simplest, market prices will rise relative to xed plan prices if the
cash decit goes up. But, just how depends upon how we dance the model. Let us
assume, though, that there is a simple relationship: prices of goods bought on markets by
SOE workers rise as the accumulated cash decit increases.
Planners face choices. How to get wage goods for SOE workers? They could pay
higher money wages to attract labour effort into the socialist sector but this could
create ination. Should this be avoided by raising the prices of goods sold to workers?
How high should money wages paid by the state be? What balance should be struck
between the desire to increase production of inputs to wage goods production (for
example, fertiliser) and the need to increase production of industrial consumer goods?
At what prices should they sell rations to workers? In all these situations, planners can
be thought of in terms of the ways in which the market inuences what they can do:
choice confronts coercion. But how?
It is useful to add to the model planners windfall gains. These are resources
available from outside the planning system. Perhaps, there are aid-nanced imports, or
the resources (e.g. oil) that can be exported to generate $s to nance imports. In any
case, it is useful to think through what choices are posed by the presence of such
windfall gains.
It is also useful to be able to think through the effects of sharp increases or declines
in the availability of such resources as a simple shock to the system and the
plan-market balance.
Planners may have to decide what to import. These can also be put in terms of the
basic economic structure already outlined. This might, for example, be food or
fertiliser, or more capital equipment. Which should it be? How should it be allocated?
What prices should be set? Most importantly what can go wrong? The model
encourages thinking through what happens to the plan-market balance: to transition.
The market corrector
Planners obtain labour effort from SOE workers through two mechanisms: supplies of
rationed goods, and payment of cash wages, some of which can be spent on marketed
wage goods. Crude measures of real wages will simply divide cash wages by the prices
of rationed goods. However, the logic of the model requires that this needs to be
corrected to take account of the presence of markets. Simple differential calculus will
show that so long as plan prices are below market prices, all other things being equal
increases in money wages will increase corrected real wages.
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But, of course, all other things are not equal. Paying higher cash wages may, by
increasing market prices through increases in the accumulated cash decit of the state,
pushupmarket supplyandso mayleadtoincreases inlabour effort. This maybe captured
by SOEs, pushing up plan output, or it may be diverted onto the market, leading to
increases in market output. This depends inter alia upon workers responses to incentives.
Such reections encourage serious thinking in terms of the monetary economy and
macro-economic dynamics. As plan and market co-exist, the economy can be thought
of in terms of the functional relationships between these endogenous variables. These
functions will be determined by economic realities, such as relative incentives,
monetary conditions, supply responses, demand elasticitys and so on. The transitional
economy presents as modellable and so law-governed[19].
A fundamental issue is whether planners continue to try to secure increases in
output by investing in xed assets the expanded production of means of production
central to CPE formal thinking. Yet, the incentive effects created by the outside
economy will tend to mean that the standard Leontievian input-output relationships
cannot be assumed to be stable, but will shift in response to the changing plan-market
relationship. If for example, labour incentives move adversely, increases in xed
capital may not lead to any increase in output. Attention shifts from the determination
of capacity to the determination of aggregate output in Keynesian terms.
Dynamics: transition as one amongst a number of scenarios?
The model remains comparative static. Dynamics may be introduced by thinking in
terms of the speed at which changes in exogenous variables, or shifts in functional
relationships, generate new solutions. For example, if there were a windfall gain in
terms of higher export prices, leading to higher imports, and if planners decided to
import wage goods, with what speed would supplies of these to workers impact upon
labour effort, upon cash revenue to the state, and so on? To give another example, if
windfall gains were suddenly lost (such as due to a loss of aid), could this lead to a
situation where markets grew spontaneously but incentives moved to lead to increased
resources to secure better plan implementation? These real time processes can thus be
construed, watched, gauged and form a basis for judgements about pace, expressed in
terms of the rationality of the model.
The model focuses attention on endogenous structural change in response to the
interaction between planners choices and the structural parameters of the economy;
the changing equilibrium between plan and market is the central element of this.
This then suggests a number of interesting scenarios and policy issues that the
model the policy rationality can engage with persuasively.
Creation of a low-level equilibrium?
A large accumulated cash decit, typical immediately after wartime ination, could
suck resources away from the plan. So long as planners continue to adopt a classic
rationality where output should rise if the stock of xed assets increases, then the
rate of utilisation of these assets will stay low, if not fall. If the market activities of
SOEs do not increase, or if labour effort into SOE planned activities does not rise
because the elasticity of supply in market wage goods production is very low (etc.),
then this situation can be thought likely to continue. Top political leaders are not likely
to be happy as they visit factories with large unused capacity.
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The outside economy as a support to the socialist sector?
The key to securing increases in planned output are positive gains in the real incomes
of socialist sector workers, taking into account their purchases of goods from the
nonsocialist sector. For, if real incomes do not grow, effective labour inputs are not
likely to rise. If SOE workers wages can buy more on the markets, then they may work
better. The market thus acts as a support to the socialist sector. Resources mobile in
response to price incentives are utilised in the unplanned economy to supply things
that increase the real wage of socialist sector workers and thus the level of resource
utilisation in the socialist sector. Cash earned in the state sector can be used to buy
wage goods on the market.
Limiting the growth of the outside economy?
A third possible outcome can also be analysed by using this approach, and this relates
to the standard Stalinist solution: use of violence against marketeers. Central to this
also is the policy advice that leaders may receive, based upon traditional rationality,
regarding the importance of preventing markets having negative effects upon socialist
sector output and concluding therefore that attacking markets will increase planned
output. But in this model, such attacks may reduce planned output, as we have seen.
Experience of this will, if properly presented and construed, attack traditional planning
rationality and favour that of the model here[20].
Clearly, without a scal decit market prices would not rise, and so market supplies
less, reducing the volume of consumer goods purchased by socialist sector workers on
the market. The development path would then be one of textbook socialist
development, with the allocation of resources between sectors by the authorities
constrained by the need to retain scal balance.
Transition parasitism or symbiosis between plan and market?
Simple reection upon the basic structure of the model shows that plan and market can
be thought of as in a parasitic or symbiotic relationship, simply depending upon how
equilibrium between them emerges and what happens. If the economy sets of on a
transition path, with successive equilibria characterised by a growing aggregate of
market transactions founded on accumulated cash balances and accompanied by a
shrinking planned economy, then the relationship is parasitic. If the plan is supported
by the market, and the successive equilibria are ones where the planned part of the
economy grows, then it can be thought of as symbiotic. And, on reection, if the
planned economy is growing absolutely, but as a shrinking proportion of the economy,
then everybody should be happy (at least for a while).
Policy responses and some practical considerations. Various policy responses can be
discussed:
.
Raising money wages paid to SOE workers and/or cutting state controlled prices
in order to raise apparent real wages, is an obvious option pay people more in
cash. But, the main determinant of labour output, bearing in mind the existence
of the outside economy, is the real rather than the cash value of wages. And, if
there is an increase in the scal decit leading to a rise in market prices or
output, it could be impossible to raise real wages in this way. Raising money
wages rates set by the plan may actually reduce real socialist sector wages.
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.
Planners could channel resources away from the production of means of
production to the production of consumption goods: less fertiliser, more clothes.
This, however, by reducing the production of means of production, would rely
upon a more efcient use of labour to increase output. Again, real wages must
rise. But how? Would the additional supplies of consumer goods actually make
people work harder? Planners must compete with the market.
.
Reducing the socialist sectors wage bill directly by cutting back on employment.
Yet people may like jobs, which give access to rationed goods, but they dislike
work especially when they have the option of outside work-moonlighting.
.
Administrative action (the Stalinist Solution). The security forces would be used
to make outside activity now declared to be anti-state unworthwhile
through the use of direct sanctions, if not terror. This can be thought of as a
sharp reduction in the economic capacity of the outside economy, comparable
to a reduction in the value of the accumulated cash decit (akin to a monetary
reform). The model permits one to see that this could be extremely
counter-productive, for if it leads to a sharp fall in supplies of wage goods on
markets, it may reduce labour incentives to work for the plan. This is similar in
effect to scal action increased taxation of producers in the non-socialist
sector. Since incentives in the market are dependent upon market prices,
increased taxes will reduce output, much of which was supporting state workers
living standards. In addition, a reduction in the scal decit could cut
inationary pressures, perhaps pushing down market prices and reinforcing the
negative effect of higher taxes upon market producer incentives. Put this way,
we can argue for this being an effect of a symbiotic relationship between plan
and market. The inter-sectoral interactions make apparently obvious (because
located in a certain rationality) policy measures confused in their impacts.
This discussion within the policy rationality shows how policy options can be
explored: a central requirement. It shows two main things.
First, that the specic rationality of the model can be used to explain how the result
of various policies could be different from what planners (using a traditional
rationality) might have anticipated. Experience of this could encourage cognitive
change and better support for conservative reform.
Second, it makes it easier to discuss why the natural direction of structural change
in a transition economy understood in this way would be away from the plan and
towards the market, and so very sensitive in political/ideological terms. The evidence
from many contexts (including the experiments reported by Yun above) argues that
markets increase both plan performance and the value of workers wages.
The heuristic should advisedly then be to encourage this, and so a transition
process that whilst starting with statements that the plan-market relations was
symbiotic, ended with a clear parasitism and the (welcome) death of the host.
Conclusions from the analysis and implications for cognitive processes and a
conservative transition policy
The possibility of policy rationality does the model work? Put at its simplest, the
analytical framework works in that it provides a way of thinking about the underlying
incentives and parameters involved in the interactions between plan and market.
Ethnography
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transition
673
The foundation of the notion of sector upon transaction type, fundamental to the
plan-market dualism, works in analytical terms. The centre of gravity of policy debates
would therefore be, not property forms or inter-sectoral relations seen in terms of
agriculture and industry, but whether transactions were voluntary or planned. More
concretely, it should not be made obvious a priori (and the model does not) whether these
transactions and the interactions between them were either supporting or discouraging
the shift from symbiosis to parasitism. As Kornai once pointed out, macro
stabilisation can, under some circumstances, be part of a conservative if not reactionary
strategy to restore a sectoral balance that is inthe interests of planners[21]. It follows that
debate would move to the position that the relationship was in fact parasitic, in that the
market should inevitably replace the plan if these processes were to continue.
Central elements of the lessons to be learnt were:
.
Endogenous systemic change can occur and the economy auto-reform.
.
The key economic signal is the relative attraction of market-oriented as
compared with plan activities.
.
It can be used to identify the different rationalities of reformers and
conservatives and their quite different ways of conceiving of the economy,
thus structuring debate in ways that may favour reformers.
.
The relationship between planned and non-planned economies in the model may
be thought of as parasitic, or as symbiotic, to tactical advantage in debate.
The model, which is no more than a policy rationality, shows that focus upon this
particular vision of economic structure works in that it provides both a persuasive
model and useful ways of exploring policy options. In this sense, it offers a conceptual
heuristic. Central to it is, a construal of the economy in terms of the basic policy issues:
transition from plan to market. This contrasts with the western literature.
Postscript
I have seen it argued that the Vietnamese economy, like that of China, was well suited
to transition to a market economy, since it was relatively un-urbanised and
un-industrialised. I have also seen Vietnamese economists such as Vo Dai Luoc take
strong issue with this position, arguing in fact the opposite. I tend to agree with them.
Further, the ways in which the Vietnamese transition was constructed intellectually,
especially its economic aspects, seem to me to suggest great creativity and nesse
(Beresford and Fforde, 1999). Recall that 1981s 25-CP that allowed all SOEs to
participate in markets was no experiment, but applicable to all SOEs, something that
was not to happen in China for some years and never happened in the Soviet Union
despite the wishes of reformists discussed above.
At the start of this paper, I discussed the opinions of Soviet reformists from the
early 1980s. I concluded that they believed it was possible to experience and
understand a process of conservative transition, and that the experiments they had
conducted showed this. Whilst they did not end up experiencing the process, their
Vietnamese and Chinese counterparts did. It is therefore quite normal for them to argue
that their leaders cognitive failure, the lack of understanding of what was on offer
from their advisers, that led to Gorbachev and the systemic crash. I have suggested,
though, that one element of this may have been their own problems in presenting to
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leaders transition policy that they could understand. They may reply that one cannot
make a silk purse out of a sows ear. Yet, detailed study of the resolution of at least
supercially similar policy tangles in Vietnam and China does point to different
cognitive processes, though I do not discuss these here. Their success does not
necessarily mean that their policies were correct, simply that they worked. One may
now meet their children and grandchildren on MBA courses at western universities.
Notes
1. To avoid possible confusion, when I use the word market, I amnever referring to transactions
subject to the plan at xed prices the so-called organised market of some usages.
2. I do not seek to review the by now extensive literature on the nature of transition. Lavigne
(2000) is a way into this for newcomers.
3. In this paper, I draw mainly upon my own published work for reference to Vietnam; apart
from the two texts just mentioned, this includes a study of north Vietnam prior to national
reunication in 1975-1976 (Fforde and Paine, 1987) and of collectivised agriculture in the
north, the state of which was arguably a central factor in the failure to implement orthodox
central-planning in the reunited country after 1975-1976 (Fforde, 1989).
4. There is a large literature on China and a far smaller one on Vietnam. Naughton (1994a, b, 1995)
presents the case for China. For myowncontributions, de Vylder and Fforde (1996) give a rather
detailed history of the transition, Fforde (2000) focuses on the institutions of the Vietnamese
formal transition model and Fforde (1999) compares Chinese and Vietnamese experiences.
Fforde (2007) looks at Vietnamese policy-advisers thinking about SOEs in some detail.
5. Fforde (2007) shows clearly the strongly anti-market intent of much policy in the early 1980s,
and its impotence.
6. Prostiakov was a department head at the Council of Ministers of the Soviet Union; with the
others he was a senior ofcial of the Politburo Commission on Improvement of Economic
Management 1984-1985; Yun (see below) was with the Department of New Methods of
Management of Gosplan and a member of the Economic Council (Fforde, 2007, p. 10).
Beresford and Fforde (1999) discuss this same issue which parts of the denition of
socialism reformers could address for Vietnam.
7. I place the word in quotes so as to avoid discussion of whether such a knowledge was true.
My interest is more whether it was part of some recognisable policy rationality.
8. Much of the analytical thrust of Naughton and de Vylder and Fforde is to point out, like
others, that much transition policy in China and Vietnam was post hoc in that it often
legalised already existing practices (Fforde, 1999).
9. I owe considerable thanks to an anonymous referee for pointing me towards the second two
strands in the literature.
10. I ignore, for example, the classic and well-known Chinese and Central European literature on
market socialism. These are usually about the end-goal rather than how to get to it.
11. One can note that this approach ignores the Soviet private plots, output from which could
be sold on the local kolkhoz markets, and which typically generated very high proportions of
collective far worker incomes (Wadekin, 1973, 1982). Thus, the technical basis of the models
structure is preserved.
12. The only formal attempt to model transition based upon Vietnamese experiences that I know
of is Fforde (1984) which has numerous shortcomings.
13. Thus, An implicit guiding principle underlying Chinas economic reform strategy since
1979 has been that reform should proceed without creating losers [. . .] (Fforde, 1984, p. 122).
Ethnography
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675
14. de Vylder and Fforde (1996, pp. 246-53) discuss the then existing western literature on
Vietnam, and shows that there was a strong tendency, which often declined over time as
foreign analysts became more familiar with what they were talking about, to attribute
change to policy.
15. The argument on p. 135 relating to the empirics of plan enforcement relies upon the
observation of continuing large volumes of transactions at plan prices [. . .] Thus, the
declining share of the plan track is attributed (p. 142) simply to a failure of policy-makers to
ratchet up the plan. For me, this assumes that transition is to be thought of as in the main
policy-determined.
16. Lau et al. by making the absolute size of the planned sector exogenous, in effect articulate a
politics where policy has far more of a role to play than in situations where the laws of
motion of transition are stated to be such that the size of the planned economy is
endogenous. But since in their model the market sector can grow endogenously, the relative
size of the planned sector is endogenous.
17. Beresford and Fforde (1999) discuss the distinction between the production and distribution
plans. One may be reminded of the joke: Under capitalism, there is chaos in consumption
and discipline in consumption; socialism, of course is the reverse.
18. Fforde (2002) discusses issues to do with appropriation of resources in transition.
19. It may be added that the model can also be interpreted as a real model of the actual
workings of a planned economy. It suggests that there may be more continuity than at rst
appears between the pre-transition and transitionary situations.
20. Those aware of the history of Vietnam in the 1990s may wish to consider that this was one of
the effects of the failed and anti-market price-wage-money reforms of 1985 on the eve of the
doi moi 6th Congress of 1986.
21. Kornai (1985) is well worth rereading in the context of the 1990s policy debates. He pointed to
the policies adopted in a Rumania seeking to repay foreign loans as a clear example of
regressive macro stabilisation. The point is obvious, once the underlying macroeconomics
are appreciated. I assume that Kornai (1980) ignored the interactions analysed here, not
because he was making a mistake, but because under those circumstances endogenous shifts
from plan to market were not thought very interesting.
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Corresponding author
Adam Fforde can be contacted at: adam@aduki.com.au
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