Phasing Out The Planned Economy

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Growing Out of the Plan
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In the beginning of 1993, they just eliminate the planned economy and nobody even notices.

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<p>So, I use the term growing out of the plan to describe the Chinese economic strategy during the 1980s. I think it encapsulates quite well the overall experience, along, of course, with this famous Chinese expression of <em>mozhe shitou guohe</em>, cross the river by groping for stepping-stones. That phrase, which people often attribute to Deng Xiaoping but, of course, it was Chen Yun who said it, is meant to say we should be very careful, we should proceed very cautiously. Very characteristic of this person. But, as the strategy was successful, it turned out to encapsulate a lot of the overall strategy. &quot;Growing out of the plan&quot; is not a Chinese expression, it&rsquo;s just something I made up, but I coined it for the first time in 1984, after I was talking to some people from the material supply bureau, which is the part of the planned economy apparatus that does the most planning in the very nitty gritty sense. They&rsquo;re the ones who allocate the materials from one factory to another. And they described to me very clearly, in 1984, the fact that they intended to fix the absolute level of the allocation plan, but encourage factories to produce more outside, or above the plan on the market. So I then asked them, &quot;But this means that the economy, as it grows, will increasingly become a market economy. Is this right?&quot; And they said, &quot;Yes, that is exactly what we envision.&quot; And so, it was this idea that was clearly there in their minds that I then labeled &quot;growing out of the plan.&quot; &nbsp;And that is, in fact, pretty much what we see through the 1980s. As the planned economy is fixed, but the growth impetus is still substantial, a larger and larger proportion of the economy is on this second track in the dual track system. And then, by the early 1990s, this dual track, the market track, has become large enough that, in the beginning of 1993, they just eliminate the planned economy and nobody even notices. It sort of disappears not with a bang, but with a whimper and the economy is driven by market prices.</p>
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Barry Naughton talks about how China's two-track price system allowed the country to "grow out of the plan," providing a gentle, almost unnoticeable, transition from a planned economy to a market economy.