Written by Professor Mao Yushi, Honorary President of Unirule Institute of Economics; translated by Ma Junjie, Project Researcher at Unirule Institute of Economics.
This article was originally published by Financial Times(Chinese) on Jan. 14th, 2019: http://www.ftchinese.com/story/001081045?full=y
Ten years ago, I divided my life experiences into three phases when I turned 80: “20 years in the Old Society, 30 years during the class struggle, and 30 years after the Reform and Opening-up”. It pretty much summarized my life, although it looks sketchy. Another ten years has passed.
My 90-year journey: 20+30+40
I was born in 1929. The 20 years between 1929 and 1949, for me, was a learning process. Power changed hands in 1949, which was a big matter for the country. Personally, I embraced a new life after graduation from college in 1950. My father was a senior expert in engineering with a good network in the area. It was not hard for me to land a job after graduation. But my family, especially my father, did not interfere with our career unless I made my own decisions. I chose to go to Northeast China. There was a recruitment delegation from Northeast China. It came to Shanghai and recruited the first group of workers and brought them to Harbin. I was recruited as the second, or the third, group and went to the Railway Bureau in Qiqihaer. That was my first job. There were six of us from the Mechanics Department at Shanghai Jiaotong University. The Railway Bureau nurtured a good environment for the new recruits where everyone got their opportunities. I even drove the train for a year. In that one year, I have learned a lot, not only in gaining knowledge, but also in exercising my tenacity.
How did get transferred in Beijing? The Ministry of Railway planned to organize and edit the traction engine calculation regulations which involved many mechanical issues. Many engineers from various railway bureaus were drafted to join the project. Some were recruited to work at the newly founded Railway Research Institute which was not an institute but more of a research department. I was one of them to be transferred to this institute, a turning point for my life.
I was labeled a rightist a few years after I joined the institute. That was 1958 when most of other rightists were labeled as such in 1957. It sounds ridiculous now. I thought I would be alright after 1957 since most of the rightists were already identified that year. However, in 1958, our of the blue, there was a Mr. Chai Mo from the Ministry of Railway who came to the institute and said Mao Yuchi was a rightist. It was not over. It was not because I said something peculiar. The party chief of the institute was called Yue Zhejian. He knew me well. He concluded that Mao Yushi’s problem was not an issue of stance, but a technical issue. I thought there was accurate. I harbored no thoughts against the Communist Party. In fact, many of my opinions were similar to the measures after the Reform and Opening-up, such as open market and protecting property rights. In 1958, Chai Mo announced that I was a rightist. During the Cultural Revolution, Chai Mo was persecuted and committed suicide. Chai Mo’s wife live in the same residential block as we do.
Big changes only took place after the Reform and Opening-up when there was market. When you are labeled a rightist, you are finished. Because the state was the only employer. Once it is done with you, you can’t make a living unless you go set up a shoe-mending stand in the street. After the reform, there are multiple employers. I might as well go to another employer if this one does not favor my service. This has changed the political environment of China fundamentally. Since I was working in the research institute where I was constantly exposed to foreign literature, I did not forego my English skills. After the Reform and Opening-up, I grabbed the first opportunity to go abroad in 1982. I have been visiting foreign countries non-stop ever since, which changed my life completely. My vision was greatly enlarged in 1986 when I was a visiting scholar at Harvard University where I met first class scholars in the world and got myself involved in international academic interactions. I visited foreign countries a couple of times every year during that period. It became less frequent when I grew older.
In terms of my family’s influence on me, although there was a liberal and open culture from my father’s and mother’s side since both my parents went abroad to study, my family was not a prominent one. My family brought up a bridge engineer Mao Yisheng, he was my younger uncle. There were some talents from my mother’s family, too, such as my other uncle who was the Dean of School of Engineering at the Central University during the Republic times. This can be called the family background, which gave me slight advantage. Family is but one aspect. I have many cousins from both sides of my parents’ and they differed from me. I observed the society, the world, studied my life, and nurtured a different depth of understanding.
Mao Yushi and Zhao Yanling(back row 5th and 6th from the left), Mao Yushi’s parents(front row 4th and 5th from the left), Mao Yushi’s younger uncle(front row 6th from the left), Mao Yushi’s sister(back row 2nd from the left)
I got married in 1955, another major turning point in my life. My wife was a very beautiful lady back then, and many men were attracted to her. I never asked her about those men, never, because I was confident in myself. I think for a common family, marriage should be taken as a life-long contract. You should have faith in the marriage, instead of swaying back and forth, or holding suspicions toward this or that. We never had that between us. We had a successful marriage. It is demonstrated not only in the strong emotional bond between us, but in the good rearing of our kids. A person’s quality can hardly be taught in school, but only nurtured in family. As parents, leading by examples is the best way to show the children right from wrong.
This can be a very long story, but it has a lot in common with those stories of any other family in China. What I was concerned with was that the fate of the Chinese people was not always controlled by themselves, but by the rulers. When the rulers wanted to go for a political campaign, such as the Cultural Revolution, everybody would hit bad luck.
Why did I choose economics?
I became an economist from an engineer when I was in my 50s. Why did I choose economics? Because economics is a science that studies the creation of wealth. We have made many mistakes in economics. Our labor did not bring about wealth, but caused severe waste of wealth. Such efforts include the mass steel-making campaign, sending youth to the mountains and rural areas for reeducation. The result was not more wealth, but a much weakened country. Therefore, I, along with every other Chinese people, wanted to study how to create wealth. It is simple. Who did not want to get rich?
We know that economics of today is full of mathematics. I loved mathematics, and it was easy for me to get into economics. I wrote a book entitled A Theory of Optimal Resource Allocation, my first work of economics that used mathematics to explain economics. When I was driving the train, i always pondered upon the problem of the process of acceleration and deceleration of the train so that it could arrive on time. There are upward and downward slops on the way, so how to drive the train in the most energy efficient manner? How to make sure to arrive on time while saving the most fuel? It became a pure mathematical problem. I was good at mathematics, so it was quite easy for me to get a grasp of economics.
Another important aspect was that you should have a wide perspective about your environment and the world so that you could get insights. I did not have this perspective until I was transferred to the Chinese Academy of Social Sciences(CASS) from the Railway Research Institute thanks to Li Shenzhi. Li Shenzhi was the director of the American Institute at CASS, and he was later appointed the Vice President of the CASS. I have a friend called Wang Guoxiang. It was he who introduced me to Li Shenzhi. After several conversations, Li was impressed and transferred me to the American Institute at CASS. I was a bit worried when I got in, because I was suppose to study China’s reforms. Li Shenzhi approved that I could use half of my time to study American problems and the other half China. Li Shenzhi was a very liberal-minded person and all he required was that we produce outcomes. He invited many rightists to join the American Institute. He liked the rightists because of their unique and independent thoughts that made them rightists.
It was 1984 when I was transferred to the American Institute. In 1986, two years later, I had the chance to visit Harvard University, and it changed my life forever. At Harvard, I sat for a class on taxation, because there was no taxation in China back then when there was a planned economy. People did not pay taxes, nor did the enterprises. They just simply turned in their profits. Therefore, taxation was a completely new issue for me. As for other classes, to be honest, I did not have to attend the classes since I could teach those classes myself. What was the difference? I talked to the top scholars in the world and became of member of them at Harvard. After 1986, and till the 1990s, I had opportunities to go abroad every year. If I had not been at Harvard, I would not have had such opportunities. Besides, my perspective was widened. I became interested in not only economics, but also institutions and ethics. I wrote a book called The Moral Prospect of the Chinese People. It is on ethics. Widening my perspective was the biggest change for me.
Why do I criticize the planned economy and advocate “to protect the rich people”?
I have always maintained critical towards the planned economy. In fact, in the international economic community, there are several economists who hold in-depth criticism towards planned economy, first of whom was Hayek. Every knows that the Road to Serfdom was about planned economy. Keynes actually said something very similar, that is the road to serfdom was full of rose petals. A road that you might think is very good may wind up somewhere in enslavement, a hell on earth, that is the planned economy. Therefore, not only me, but all other qualified economists believe that planned economy is not feasible.
The word “Communism” was first translated by Japanese into “common production”, and the word itself does not imply anything like that. It means “of communes”. The communes imply that within a certain small scope everyone has the equal right to speak their mind and to develop freely. The Japanese translation led to great suffering of the Chines. China took in communism and used this doctrine to confiscate the properties of land owners in rural areas and started public-private cooperations in cities. After Lenin, Stalin and Mao Zedong, a lot of new stuff were added to communism, such as “dictatorship of the proletariat”. There was no such thing in the original communism. It was merely an ideal.
Common production, after Marx proposed it, had its glory for a century where many thought it was the human ideal. But in practice, no good came out of it. Now, communism is in global decline. Are there still communist countries in the world? Not one single successful communist country. From the perspective of an intellectual, the institution humankind would choose has already been chosen. That is what Fukuyama called the “end of history” or constitutional democracy. There is no doubt about it.
I have always been saying that human beings pursue equality for a reason, but many tragedies in the world are a result of this pursuit, including the communist ideal. People are different from one another, that is a fact of the nature, an irresistible fact. Of course, we don’t like inequality. We could limit or adjust, to some extent, inequality, but don’t expect to eradicate inequality once and for all. Communism tried to eradicate inequality once and for all, we all know what that led to, public ownership of property and tragedies as a result. It is a great historic lesson. For the last century in the world, all the issues that resulted in massive human loss had something to do with the obsessive pursuit of equality.
Since it is not wise to pursue absolute equality, I have always believed in “speaking for the rich and acting for the poor.” I was awarded the 2012 Milton Friedman Prize for Advancing Liberty, perhaps for this reason. We need to protect the rich people, whereas in many societies the rich people are hated and envied. A society where the rich is persecuted would eventually become a country of poor people, because anyone who becomes rich would be persecuted. The reason why the rich are hated has something to do with Marx’s reasoning that the rich become rich by exploiting others. In the past, people believe labor was the reason for the creation of wealth and since the rich do not have to labor to make a profit, they must have gotten their wealth by exploiting others. This view has changed. What creates wealth? It is resource allocation. People and goods should all be allocated properly, people should utilize their talents and goods should be utilized for their best use, and wealth is created this way. Who, then, is allocating these resources? Entrepreneurs. Therefore, it is right for entrepreneurs to make money, because they have utilized people and goods wisely.
Many countries have not recognized this issue and made a mess of themselves, the most typical of which is Venezuela. I am deeply concerned about this country that proved the falsehood of Marx’s view. Venezuela was a rich country in the past with an oil reserve much bigger than Saudi Arabia. Now it is one of the most unfortunate and devastated countries in the world with unprecedented inflation, crime rate and lack of daily supplies. Its biggest mistake was to take a hit at the rich people.
Why do we need economists? It is because economists would tell you it is not going to work if the rich are persecuted. I, therefore, choose to speak for the rich but act for the poor. If we do it the other way around, speaking for the poor and acting for the rich, the society would not work well either.
How do I see China’s 40 years of Reform and Opening-up?
I am an economist. Simply put, from the economic point of view, the most important lesson from the last 40 years was that we figured out how wealth was created. Wealth is created by allocation. When people’s talents and the use of goods are put to the best use, wealth is created. How to do that then? There needs be freedom, market, and property rights. This summarizes the lessons for the last several decades. Nowadays, the Chinese people have personal freedom, the freedom to choose, and the protection of property rights. Are these not human rights? Of course we have made great progress in human rights. At the end of the Cultural Revolution, the national economy was on the brink of collapse exactly because there was not personal freedom and no protection of property rights. We changed that situation and wealth was created in masses.
China’s transition from a planned economy to a market economy is much more successful than many other former planned economies. When it was the planned economy, everyone belonged to the interest group where you could buy cheap meat and cheap grains with tickets. In a market economy, all such tickets had to go. What happens if you don’t want to forego the tickets? We adopted the dual track system. It works this way: your tickets can still buy things, but when you need more than what your tickets can buy, you could buy things from the market nearby. This is the dual track system which solved the difficulties of transitioning into a market economy. In this respect, China is a big success.
When I review China’s economy, from Mao Zedong’s time till now, there have been two thoughts emancipations. The first was the national discussion on the criterion for truth in 1978 which was concluded that “practice was the sole criterion for truth.” It is false in the philosophical sense since practice could hardly test truth, but this discussion had a huge impact on the emancipation of thoughts back then. It told us that we were living in practice, not in texts. In Mao’s time, everybody was living in the texts that told the Chinese people what a happy life they had and what a miserable those living in capitalist countries had. It was not true at all. The second thoughts emancipation was during Deng Xiaoping’s Southern Tour in 1992 when he required not to distinguish capitalism from socialism but to trust that “the cat that caught mice was the good one.” His remarks led China down the road of capitalism. I believe we need another thoughts emancipation. What is it then? It should be a campaign to upend the belief in public ownership.
If you ask me what problems have not been addressed so far, I would say the issue of public ownership. There is a theory of general equilibrium in economics. What does it mean? It means that you need to let prices fluctuate freely. When there is a lack of supply, the price should go up, and then there is over supply, the price should go down. All the commodities would eventually be supplied at the proper amount, no more, no less. This is when the efficiency of the economy if the highest and the most wealth is created thanks to the prices. This is the theory of general equilibrium. But what’s behind this theory? Why should the price go up when there is a lack of supply, and down when there is over supply? What’s behind it is private property rights. Premier Li Keqiang also said that resource allocation should be left to the market. But he forgot to address the more important issue of the private ownership in the market. If the market is not dominated by private ownership, it cannot influence resource allocation. The economy of developed countries is more efficient without much waste, because there is private ownership. Properties are protected. Therefore, the price could respond to the changes in supply and demand. Under public ownership, the price can not respond accordingly.
The major problems in China all have something to do with public ownership. There are issues of over capacity, insufficient consumption, real estate bubble, investment-driven GDP growth, and distorted income distribution, all of which are related to public ownership. There are 5000 banks in America all of which are private. The US government has no banks. In China, however, the government dominated the banking industry and the people are not allowed to set up banks. Since the people are not allowed to set up banks, where do their savings go? In America, the savings of the people can be used to set up banks, or in telecommunication, power generation and oil industries. All of these industries are owned by the state in China. In fact, all the profitable industries are dominated by the state and the savings of the Chinese people have little profit seeking opportunities except the housing market, which explains the real estate bubble. If the Chinese people are allowed to open banks, they are likely to sell the houses and set up banks using that money for the apparently more profitable prospect. And the housing price will immediately come down. The housing price in Beijing is even higher than that in New York, which is totally distorted. And the root cause lies in public ownership.
Of course, the Chinese economy is not 100 percent public owned, it is a mixed ownership system where there are elements that are owned by the state and those that are owned by the private sector. But many of the important things are still distributed by planning. Land and credit, as the most important resource and capital, are not all distributed by the market. Back to where i said goods should be put into their best use, land should also be put into its best use. If I were the owner of this land, what should I use it for. I would definitely ponder upon it. Should I use to build roads, or houses, or a parking lot? I would think about it. Now that the land is owned by the state, no one really cares. Therefore, there is sever problems regarding the land. Compared to developed countries, land in China is not used fully, nor is the money. Who can best use the money? That is the financial industry. Land and finance, if government monopolies were broken, would generate great potential for growth.
Without solving the public ownership issue, we can hardly modify the relation between the market and the state. The state should stipulate the order of the market as a referee. If the government runs its own enterprises and makes money in the market, that is no different than the referee decided to play football in the court. Although state owned enterprises claim to be owned by all of the people, what can these people do with them indeed? We can not sell the state owned enterprises, we do not have the right of disposal, nor the right to operate or profit from them. The overturning rate of these state owned enterprises is very low. By 2020, this rate will have reached 30% from nothing or less than 10% originally. What do you think we need these state owned enterprises for?
Some say the public owned economy enables the government to concentrate financial resources to “do big things”. That’s why the government is able to build high speed railways, highways, and so many airports. But, in contract with the rich government, the Chinese people do not have much to spare. This is another feature of the Chinese economy. Generally speaking, the investment at present is for the consumption in the future, but since the people do not have the money to consume, they won’t be able to consume in the future, which would constitute a vicious self-enhancing circle of investment. It is a cause of China’s over capacity issue. Therefore, I believe it does not make much sense to maintain a certain percentage of public owned economy in China for the time being.
My biggest joy and expectations
I am 90 years old now, and my biggest joy is China’s market reform. What’s behind the market reform is the private property rights. The young people may not know that before the market reform, every enterprise and even shops were owned by the public, that is by the state. There was nothing private. Unless you want to set up a stand in the street to mend shoes. Or you want to be a nanny, you are free to do so. All other jobs in China were provided by the sole employer, that is the government. Later, after the market reform, there was the private owned economy, which totally shifted the economic structure and brought about the changes in my life.
If you ask whether I would want to live in another time and country, were I able to choose? Of course, if I had that choice, I would have wanted to be in America. But this is a personal question. It is not only me, but everyone. Can everyone go to America? Of course not. But what’s possible is to change our country to be more similar to America. This is something more likely to happen and something you could actually fight for. I think we need a consensus. What is your goal? I think this question has already been answered, because families in China with necessary means have already sent their kids to America, or England, or Germany. It shows that we need to learn from those countries.
I remember I visited East Germany in 1989 when its economy boasted to be the best among the communist bloc. I took the plain to go to East Germany but the venue for the meeting was in West Germany. Therefore, I needed to go across East Germany. Back then the Berlin Wall was still there. I took the public bus with a full bus of Germans. They were all cleared for traveling to West Germany for various reasons. When the bus crossed the border, everyone on the bus began cheering. I was curious at first and then understood they were cheering because they were embracing freedom. That was what people longed for.
Of course, going abroad to study is not something everyone has the means to do. When the less privileged people in China acknowledge our goal and our direction, China is more likely to change for the better.
When it comes to my biggest regret, it is simple, China is still a despotic country. I wish China would become a country of democracy, rule of law and constitutional order soon. I believe this day will come, though I might not be able to see it myself. It is not far. I am most concerned about this, because I understand going backward would lead to disaster. Therefore, I feel I am responsible for making sure not letting this society go backward and pushing this society forward. It can be said that my lifetime’s efforts are for this purpose, to avoid backwardness and to promote advance. As a Chinese, there is nothing more important than this goal.
As for the Chinese youth, my hope for them is that I wish they have the ability to think independently. I wish they could pursue truth. What is false? What is truth that’s worth pursuing? Besides, I wish they would pursue reasoning and logics. If they can do both, there is hope for our next generations.