Deng Xiaoping’s move to de-collectivize agriculture was crucial in China’s development.
David Dollar: I think this is well understood and well studied. Mao had collectivized agriculture. Most people were living in very large communes with thousands of people, where what they got in terms of food and any kind of pay was unrelated to their work effort. And Deng Xiaoping led a movement to a basically de-collectivized agriculture, returned lands to family farmers. So you as a small family, you were given a plot of land. There was a fairly equal division of the land, and while you didnÃ¢â‚¬â„¢t have complete property rights in the sense that you could just sell this land, you had a very good property right in the sense that if you improved the land, if you grew more rice, if you shifted to a new crop and that was successful, you would largely reap the benefit of this. You would sell that product. You would have the product. And within one or two years, agriculture output increased 20% in China. So this is a great experiment . . . policy experiment where you change the system or property rights, and within a year or two output goes up by 20%. And then China is too densely populated for the whole country to be rich as farmers. So I think that was an important first step; but then very quickly the government started moving to opening up foreign trade and investment. And they did this cautiously at first, creating these special economic zones they could trade, and where foreign investors could come in; but some of these were quite large. The whole city of Shanghai with almost 20 million people was a special economic zone. Large parts of Guangdong province in the south with special economic zones. So you opened up a lot of the country to foreign investment. Very quickly you had a lot of textile investment coming in, electronics creating a lot of jobs. So I think they were very good about getting this dynamic of growth started with a few key changes. And then they have successfully reformed over 20 years, continuing to strengthen the basic institutions of a market economy.
Recorded on: 7/3/07