Think of it as Yoga for the brain, we are going to stretch a bit.
How China Evolved Away from Communism After It Failed
China’s economic miracle did not begin when communism finally worked. It began when China stopped insisting on it. -- YNOT!
For decades, China tried to build prosperity through orthodox communist economics: collectivized agriculture, state ownership, central planning, government-set prices, production quotas, and ideological control over economic life.
The result was not prosperity. It was poverty on a historic scale.
When the Chinese Communist Party took power in 1949, China was already desperately poor after civil war and Japanese occupation. Mao Zedong then attempted to remake the economy according to revolutionary ideology.
The most catastrophic experiment was the Great Leap Forward.
Beginning in 1958, Mao attempted to industrialize China at extraordinary speed while reorganizing agriculture into giant communes. Farmers were pulled away from fields, agricultural tools were melted down in primitive attempts to increase steel production, and government planners imposed unrealistic production targets.
The consequences were devastating.
The famine that followed killed tens of millions of people, with historical estimates ranging from roughly 15 million to more than 50 million deaths.
Then came the Cultural Revolution.
Schools and universities were closed. Intellectuals and alleged political opponents were persecuted. Historic buildings were destroyed. Expertise itself became suspicious because ideology was considered more important than knowledge.
By the time Mao died in 1976, China had nearly one billion people but a per-capita GDP of only about $175.
And then something extraordinary happened.
China did not suddenly announce:
“Communism failed. We are capitalists now.”
Political systems rarely admit failure that directly.
Instead, China began quietly changing the rules.
Enter Deng Xiaoping
Deng Xiaoping was a communist revolutionary, but he was also a pragmatist.
He had already gotten himself into trouble under Mao for suggesting that limited private ownership should be permitted if it increased production. Mao viewed ideas like that as a dangerous retreat toward capitalism.
After Mao’s death, however, Deng eventually emerged as China’s dominant leader.
His philosophy could be summarized in one principle:
Results mattered more than ideological purity.
Chinese reformers described their approach as:
“Crossing the river by feeling for the stones.”
In other words, don’t design the entire economy from a political theory.
Try something.
See if it works.
Keep what works.
Discard what doesn’t.
Then take another step.
That may be one of the most important economic lessons of the twentieth century.
Deng began what became known as “Reform and Opening Up.” China reopened relationships with countries it had once treated primarily as ideological enemies and began actively studying how successful economies worked.
And here is the part of the story that deserves much more attention.
The Chinese started asking capitalists how capitalism worked.
Chinese officials traveled abroad.
Deng toured factories in Japan.
He visited the United States.
He toured companies such as Ford and Boeing to understand modern manufacturing.
China invited foreign economists into the country.
They studied economists from Eastern Europe who had criticized command economies.
They invited Nobel Prize-winning economist Milton Friedman, one of the world’s most famous advocates of free markets, to lecture Chinese officials and economists.
China began sending students and economists to major Western universities to study mathematical economics, econometrics, industrial organization, finance, and modern economic management.
Think about what that means.
One of the world’s largest communist countries was effectively saying:
We need to understand why the capitalist economies are producing things that we cannot.
That was an enormous intellectual shift.
China Did Not Abandon Communism Politically
This distinction is critical.
Deng was not a Western liberal democrat.
He believed strongly in maintaining the Communist Party’s political monopoly.
Political dissent remained heavily restricted.
What Deng separated was political power from economic organization.
China could remain politically authoritarian while allowing increasingly capitalist behavior economically.
That became the Chinese experiment.
Call it socialism.
Call it a socialist market economy.
Call it state capitalism.
The label matters less than what actually changed.
And people responded exactly as economic incentives would predict.
They started producing.
The source describes it succinctly: once enterprises were given greater autonomy and allowed to retain profits, market forces were unleashed and economic activity accelerated.
One of China’s Cleverest Reforms: Don’t Destroy the Old System Overnight
China faced a dangerous problem.
You cannot simply shut down an enormous centrally planned economy on Monday and announce free-market capitalism on Tuesday.
Millions of people depend upon the existing system.
Factories have quotas.
Workers have jobs.
Cities depend on controlled prices.
Supply chains depend on government contracts.
Destroy everything immediately and the entire system can collapse.
So China experimented with something ingenious:
The Dual-Track System
A factory might still be required to produce 10,000 units for the government at the official state-controlled price.
But suppose it could manufacture 15,000.
The additional 5,000 could increasingly be sold into the market at whatever price buyers were willing to pay.
The communist economy remained.
But a market economy began growing around it.
The source gives a wonderful analogy:
Imagine the planned economy as a small bonsai tree.
Instead of cutting the bonsai down, China simply planted a forest around it.
Eventually the forest became vastly larger than the tree.
That is essentially what happened.
And China Made Mistakes
This was not some perfectly designed master plan.
China experimented.
Some experiments failed spectacularly.
Price reforms contributed to inflation.
Corruption exploded in areas where officials could buy goods at government-controlled prices and resell them at market prices.
In 1988, an attempted rapid liberalization triggered panic buying, bank withdrawals, and sharp price increases.
China adjusted again.
That is the important part.
Deng’s system was not based upon the idea:
“We possess the perfect economic theory.”
It was based much more on:
“Try it. Measure it. Fix it.”
That is almost the opposite of the ideological rigidity that had characterized the Mao era.
Then Came Tiananmen Square
Economic liberalization created another problem.
Once people begin receiving greater economic freedom, some begin demanding greater political freedom.
Those tensions contributed to the enormous demonstrations in Tiananmen Square in 1989.
Deng ultimately sided with the hardliners.
The Chinese military was ordered to clear the demonstrations.
Hundreds—and possibly thousands—were killed.
This revealed the boundary of Deng’s reforms very clearly.
Markets could be liberalized.
The Communist Party could not be challenged.
China’s experiment therefore became something historically unusual:
Economic liberalization without political liberalization.
For several years after Tiananmen, reform slowed.
But Deng did something remarkable again.
At 88 years old, in 1992, he traveled through southern China, including booming Shenzhen, signaling that economic reform would continue.
A year later China formally changed its constitutional language.
The country would no longer simply operate a planned economy based on socialist public ownership.
China would operate a:
“Socialist market economy.”
The transformation had become official.
The Results Were Extraordinary
Whatever terminology we choose, the transformation of China’s economy became one of the most important economic events in human history.
Over roughly four decades, close to 800 million Chinese people were lifted from extreme poverty, according to the source, with the reform era beginning under Deng in 1978.
China went from one of the poorest major countries on Earth to an industrial powerhouse.
Factories appeared. Cities exploded in size. Exports surged. Infrastructure expanded.
Foreign companies poured capital and technology into the country.
Hundreds of millions moved from rural subsistence agriculture into an increasingly industrial and commercial economy.
And China eventually became the world’s second-largest economy.
China Didn’t Really Abandon Communism
This is where the story gets more interesting.
China abandoned much of communist economics without abandoning Communist Party political control.
That distinction explains modern China. The government still calls the system socialism.
The Communist Party still rules. The state still owns or influences enormous portions of the economy.
But the economic engine that transformed China increasingly relied upon things classical communism was supposed to eliminate: Markets. Profit. Competition. Private enterprise. Foreign investment. Individual incentives. International trade.
China essentially discovered that you can command people politically far more easily than you can command an economy.
Because an economy is billions of decisions happening simultaneously.
What should something cost?
How many should we manufacture?
Where should it be shipped?
Should another factory be built?
Which technology should we use?
What does the customer actually want?
A government planning ministry cannot possibly possess all of that information.
Markets distribute those decisions among millions of people.
And when China began allowing those people to make more of those decisions themselves, the economy exploded.
The Great Lesson of Deng Xiaoping
Deng’s genius was not inventing capitalism. It already existed.
His genius was recognizing that China’s existing system wasn’t working and being willing to steal good ideas from whoever had them.
Capitalists.
Socialists.
Americans.
Japanese.
Europeans.
Economists.
Engineers.
Factory managers.
He didn’t care where the idea originated nearly as much as whether it produced results.
That philosophy may be Deng Xiaoping’s most important legacy: Ideology tells you what should work. Reality tells you what actually works.
Mao tried to force reality to conform to ideology.
Deng increasingly forced ideology to accommodate reality.
And China changed. The irony is enormous.
One of the greatest economic transformations in history occurred not because China perfected communism—
but because after decades of catastrophe and poverty, it progressively allowed many of the market mechanisms communism had been created to replace.
China never stopped calling itself communist.
It simply stopped running much of its economy as though communism actually worked.
