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Abstract This case study examines the entry of China into the World Trade Organization (WTO) from the Chinese point of view. It provides an avenue for discussion about the nature, costs and benefits of the WTO as seen by developing countries. It can also be used to analyze trade policy in general. Using a dramatic format, it presents a series of “witnesses” from the experience of China and several other developing countries (including South Korea, India, Mexico, and Russia), each offering their perspectives. It encourages students to think about development as a multifaceted process, not reducible to GNP growth, and then asks them to weigh these factors in offering advice. Dramatis Personae: Printable version (Adobe PDF) JUDGE: Jiang Zemin, president of the People’s Republic of China, General Secretary of the Chinese Communist Party, and protégé of the late (lamented?) Deng Xiaoping. DEFENDANT: The World Trade Organization (on charges of crimes against humanity) PROSECUTION: Mao Zedong, founder of Chinese Communism and supreme ruler of China from 1949 to 1976. Deceased (but still pretty lively). DEFENSE: Deng Xiaoping, reformist leader of the People’s Republic of China, once exiled by Mao as a ‘capitalist roader’ and counter-revolutionary, who led China toward market and trade reforms from 1978-1997. Also dead, but not defeated. WITNESSES: Mikhail Gorbachev, former Secretary General of the former Communist Party of the former Soviet Union. Subcomandante Marcos, Mexican leader of an indigenous peasant rebellion in the poor southern state of Chiapas, Mexico. Internet superstar, sex symbol, and critic of globalization. Kim Young Sam, former opposition leader and current President of South Korea. Zhu Rong-ji, rising Chinese technocrat and old buddy of Jiang Zemin since their days in local politics in Shanghai. An intellectual defender (and sometime engineer) of market-oriented economic reforms since the late 1980s, he has been called the ‘Gorbachev of China’. Renato Ruggiero, the pudgy, cheerful Italian chosen as the first Director-General of the World Trade Organization. A career diplomat (and former consultant for Fiat and Ferrari) Ruggiero has the reputation of a tough negotiator, as his nickname—‘Rocky’—suggests. Yang Shangkun, former head of the Military Commission and former president of China. After supporting Deng’s decision to use force at Tiananmen, he and his younger brother were ousted the following year, in part because his power base in the People’s Liberation Army had become too strong, and he posed a potential threat to Jiang. This is a fictional account of China’s decision to seek entry into the World Trade Organization, and is intended only to present in a dramatic fashion the factors that a country like China might consider. The people are all real, and to the extent possible, their own words have been paraphrased or cited. The statistical and descriptive analysis is essentially accurate for the time period, although in a few cases it was necessary to use figures that reflect later dates. However, the actual event herein described never occurred. Or did it? Our story opens February 22, 1997, three days after the death of Deng Xiaoping, in the People’s Republic of China. Jiang Zemin rubbed his eyes wearily and pulled his bathrobe close around him as he stared at the latest economic reports. These past few days since the death of his mentor and political sponsor Deng Xiaoping had been difficult. Though he had governed China mostly on his own since Deng’s withdrawal from public life a little over two years earlier, he had always known that he could fall back on Deng’s authority—and his considerable guanxi (connections)—to bolster his position on any policy. Now Deng was dead, and he was truly on his own. In the short term, at least, he felt confident that he could maintain his position. Deng had warned him repeatedly to learn from the fate of Hua Guofeng, Mao’s chosen successor, who had ruled China briefly before losing a power struggle to none other than Deng himself. “Hua made two mistakes,” Deng had said. “The first was made for him. Mao disliked any challengers to his authority, and constantly changed his designated successor. He did not give Hua sufficient time or resources to consolidate his position before Mao himself died. I have given you that time, by withdrawing from public life and allowing you to assume the positions of power: Secretary General of the Communist Party, President of China, and head of the Military Commission that controls the People’s Liberation Army. The second one Hua made himself. He did not deliver improvements in China’s economic or political position. This gave me the opening I needed to take China away from him. I have done what I can to set China on a firmer footing, but you will now be responsible for avoiding Hua’s second mistake.” Indeed, Jiang’s position was far from certain. His old rival, Yang Shangkun, retained some influence within the military despite his exile from official positions. Qiao Shi had the support of the public security bureaucracy. Zhu Rong-ji, though an old political ally, was seen by many as a more convincing and credible reformer. Jiang himself—let’s face it—was dull. He lacked the charisma or personality of a real leader. His peers saw him as indecisive, a consensus-builder rather than an innovator. Not for nothing had they nicknamed him ‘the Weathervane.’ In the two years since Deng turned over formal power, Jiang had governed mostly by rote, following the Dengist political and economic line, in part to avoid a last-minute change of heart by Deng, who still had enough influence to overturn Jiang’s succession. Now that Deng was dead, he had the opportunity to reconsider this trajectory. Jiang had always had more doubts about pro-market reforms than many in Deng’s circle, including Zhu Rong-ji. China’s application for entry into GATT, originally made in 1986, had gone nowhere, opposed by negotiators in the United States who constantly criticized China on political grounds, and made no allowances for its massive challenges. China’s effort to become a founding member of the World Trade Organization, in 1995, had failed too. And unrest was mounting within China. Only last summer, a book published in China had argued that China Can Say NO to free trade.[i] Given the restraints on Chinese media, this publication indicated swelling nationalist sentiment within some sectors of the Chinese Communist Party. The effects of past liberalization had contributed already to one disaster that threatened Communist Party power: the Tianmanmen Square protests in 1989. It had been necessary to use the Army to break up pro-democracy demonstrators. Jiang Zemin had supported the repression. In a way, he owed his job to Tiananmen. He had only become Deng’s successor after Deng fired his original choice, Zhao Ziyang, for showing too much sympathy for the demonstrators. But Jiang could not afford another Tiananmen on his record now. Yet if he abandoned the pro-market, pro-trade line, what would happen to China? In only a few months, Hong Kong—a major trading island—would be returned to Chinese sovereignty. A few months after that, the Fifteenth Party Congress would meet. He needed to start building a political coalition now, to support his final decision about whether to shift direction, and how to deal with Hong Kong. Anxious and tired, Jiang lay back in his chair and closed his eyes. A loud banging noise startled him awake. “Your honor?” said a strangely familiar voice, an aide of his he supposed. “We’re ready to begin now.” Jiang looked around. He was no longer in his own office, but a large courtroom, and standing before him—but no, this was impossible!—he recognized the figure of Deng Xiaoping. “You’re DEAD!” he blurted. “Not exactly,” said Deng. “I have given my life in service to China. Did you really think I would take no interest in her after my death? I have been granted this opportunity to speak with you one more time, to help you make your decision. I act today as the Attorney for the Defense—defense, that is, of the World Trade Organization. I will have the right to present witnesses, examine the evidence, and argue that China should continue to pursue entry into the WTO, as rapidly as possible. Representing the defendant here is Renato Ruggiero, Director-General of the WTO.” “Pleased to make your acquaintance,” said Ruggiero, smiling broadly. “Not so fast,” another voice chimed in. Jiang turned to his left and blinked in disbelief. The voice, he had forgotten, but the face—yes, he knew that face. Who in China did not know the face of Mao Zedong, founder of Chinese Communism? Mao continued speaking. “Deng is not the only man who gave his life for a greater China. But he has forgotten that China is her people. I act today as Prosecuting Attorney. I charge the World Trade Organization with subjecting its victims to the harsh dictates of capitalism. I charge it with crushing the workers and the peasants, the common masses, in the name of efficiency and greed. And I come prepared to back up my claims. China is large enough and strong enough to make it on her own. Do not sell China to the highest bidder. Keep her whole, and free, and focused on the needs of her own people, not the needs of rich multinational companies.” “Yes, well….” Jiang stammered. Clearly, this was a hallucination of some sort, or an especially vivid dream. Renato Ruggiero had to be thousands of miles away, while Deng and Mao—well, they were dead, after all. But this promised to be entertaining, and he found himself curious about what they had to say. “Proceed with your opening statements. Chairman Mao?” “Thank you, Comrade. We are here because of a great treason, committed by none other than the attorney for the defense, in collusion with the capitalist and imperialist forces that the defendant represents. Twenty years ago, Deng Xiaoping came to power against my will. I exiled him for betraying the principles for which the revolution was fought. Since he came to power, he has ruled in my memory, while desecrating every principle I taught. He has forgotten that the people and the people alone are the motive force in the making of history. He has forgotten that our point of departure, our purpose as China’s leaders, is to serve the people wholeheartedly, to proceed in all cases from the interests of the people and not from one’s self-interest, or from the interests of a small group. He has defended the interests of a small group of Chinese bourgeois capitalists, and worse, he has encouraged them to ally with foreign capitalist powers. We should unite with the peoples of the imperialist countries and strive to coexist peacefully with them, do business with them and prevent any possible war, but under no circumstances should we harbor any unrealistic notions about them. Make trouble, fail, make trouble again, fail again, till their doom, that is the logic of the imperialists. Fight, fail, fight again, fail again, fight again, till their victory, that is the logic of the people.[ii] But Deng Xiaoping forgot these things. He forgot the nature of imperialism. He lost faith in the power of the people. He forgot that our policy should rest on our own strength, our own efforts, and not the manipulations of foreign interests. Since his accession to power, he has introduced the principle of greed into our socialist project, inviting foreign investors into China, lowering her trade barriers, and even attempting to convert our collective agriculture system into privately owned land. Now, he wishes you [Jiang Zemin] to complete his treason by bringing China into the World Trade Organization, an organization designed not for the benefit of the oppressed peoples of the world, but for the benefit of the United States and her capitalist allies. More than any previous trading regime, the World Trade Organization subjects developing nations to the dictates of foreign governments—in terms of trade, services, labor standards, environmental rights, even our domestic political arrangements. The Defense will claim that these policies have brought prosperity and growth to China. But at what price? What price have the Chinese people paid? Above all, what price will the peasants—the heart and soul of our Revolution—pay for further trade reforms? Since the acceleration of trade reforms, in the mid-1980s, regional income disparities have become more acute. In 1978, 10 provinces in China generated per capita incomes of less than 80% of the national per capita income average, while five provinces earned per capita incomes more than 120% of national per capita income. By 1994, 14 provinces stood at less than 80% of the national average, and 8 provinces stood at more than 120%.[iii] A regional polarization has occurred. The richest province today has a per capita income more than ten times greater than the poorest. The inter-provincial GINI coefficient, which measures income disparities, has increased since 1978, from .24 to .27.[iv] China has always been unequal. But I worked to develop the more backward provinces, bring them up to the level of the more prosperous ones. Deng, by establishing Special Economic Zones for foreign trade and investment, and by spending state funds preferentially to develop the already wealthy coastal provinces, has done exactly the opposite. Regional inequality is unusually high in China—worse than Indonesia, India; indeed, only Yugoslavia is higher.[v] Income disparities have also begun to grow between the rural and urban sectors. These disparities have long existed, but Deng encouraged them, arguing that it is glorious to get rich.[vi] The advantage of city incomes has grown from 1.7 times farm income in 1985, to 2.3 times farm income in 1995.[vii] Moreover, the state has withdrawn from its role of protecting and promoting the popular interest. Deng has begun to lift price controls, with the result that inflation is rising. As state protection of jobs and services diminishes, unemployment has gone up, and the provision of critical services has deteriorated, especially in the rural areas. Life expectancy in the poor provinces is 59 years, comparable to that of the lowest income countries in the Third World, even as life expectancy in the rich provinces rose to 75 years, comparable to that of the high-income capitalist nations. Rapid industrialization has contributed to urban air and water pollution, acid rain, and an increasing garbage problem that will worsen the health of our urban comrades as well as that of the peasants.[viii] Such inequality and neglect is both unacceptable and dangerous. Other governments have fallen victim to civil violence and unrest motivated by government neglect and the perceived injustice of inequality. China—and you—will suffer the same fate unless action is taken now to correct these trends. Entering the WTO will only make things worse. If protecting our people means retreating from trade and markets, even if it means accepting a slowing down of GDP growth, then so be it. We should not be afraid to sacrifice for our principles, for our nation. I will present evidence today, from other victims of world trade, that if we seek entry into the WTO, we are accepting an economic structure that condemns many to poverty and misery while enriching a few. We are abandoning the revolutionary project. And we are handing over our nation to the exploiters of humanity.” As Mao sat down, Deng Xiaoping rose calmly, and began to speak. “Chairman Mao has spoken very eloquently of the goals of development, of the people, of our glorious revolution, and our national pride. And I believe in all those things. I fought for independence, for our Communist Party, for the benefit of the peasants and the working classes, just as he did. I respect his contribution to our past. But he is wrong when he says that we must abandon our strategy of opening and economic reform in the name of equality. Some people in rural areas and cities should be allowed to get rich before others. It is only fair that people should become prosperous through their own hard work. Since conditions for the country as a whole are not ripe, we can have some areas become rich first. Egalitarianism will not work.[ix] What matters more to people? Equality? Or improvement in their standards of living? In 1980, I called for China to quadruple its GDP by the year 2000. People laughed. They thought this goal was unrealistic. But 25 provinces and autonomous regions have already reached it.[x] Per capita incomes have risen most quickly in wealthy regions, but they have also risen in poor ones. Even in China’s poorest province, Guizhou, per capita GDP rose from 219 renminbi in 1980 to 1,853 RMB in 1995, more than eight times greater than in 1980. Consumption levels have increased for both farmers and non-farmers. Although 50 million people remain in destitution, over 200 million people have been lifted above the poverty line since 1978.[xi] Poverty is not socialism. Socialism means eliminating poverty. Unless you are developing the productive forces and raising people’s living standards you cannot say that you are building socialism.[xii] To be sure, some of this growth did not result from trade, the issue before us today. However, trade and foreign investment have played a key role in China’s economic success. I will call witnesses to these facts. China’s pursuit of socialism with Chinese characteristics has resulted in one of the most impressive growth records in the developing world. This only demonstrates the correctness of our path of opening. China needs WTO membership to lock in these reforms, to protect access to foreign markets, to attract foreign capital, and to continue China’s strong growth. We need growth to help our people. We need growth to defend our national independence and sovereignty. A wealthy China is a powerful China. Equality is irrelevant in these circumstances; what matters is the ability to live more comfortably, not whether I live more comfortably than you. Does equality make the peasants better off? Or do trade and markets make the peasants better off? Prosperity, not equality, is what China must offer its people. As for the means of giving them prosperity, it doesn’t matter whether a cat is white or black, as long as it catches mice.[xiii] If prosperity means engaging in the world trading system, using market mechanisms to achieve our goals of improving the lot of China’s people, then that is what we must do. Today, I will call witnesses to testify to the positive effects of participation in the world trading regime. I urge you to declare the WTO innocent of crimes against humanity—indeed, to declare it responsible for major gains in world welfare. And I urge you to redouble your efforts to secure China’s entry into the WTO with the least possible delay. Thank you.” Mao:
The Prosecution calls Sarah Anderson, an academic from the
Institute for Policy Studies.[xiv] SA: The World Trade Organization is an international organization whose main purpose is to reduce international barriers to free trade. In 1995, it replaced the older GATT—that’s the General Agreement on Trade and Tariffs—created in 1947 as a framework for multilateral negotiations to reduce trade barriers. Mao: So the WTO is just another name for the GATT? SA:
In a way.
The GATT
rules have become part of the WTO, but the WTO is a much broader
and more
powerful institution.
GATT
was never ratified in members’ parliaments, and contained no
provisions for the creation of an organization.
The WTO is a permanent international organization, ratified by
the member nations.
GATT
dealt only with trade in goods, but the WTO covers services and
intellectual property rights as well.
Perhaps most importantly, the WTO has much stronger enforcement
powers.
GATT had
mechanisms to mediate trade disputes among members when one nation
accused another of breaking the rules, but member nations often ignored
GATT rulings.
Unlike GATT,
WTO decisions are binding.
The
WTO can then authorize a complaining nation to impose trade sanctions.
This development represents a shift in power from citizens and
national governments to a global authority run by un-elected
bureaucrats.
The WTO is not required to consult with
non-governmental organizations or release documents until after
decisions are made.
WTO
dispute resolution panels hold hearings and announce rulings in secret. Mao: In your view, how do these rules affect developing country industries? SA:
The WTO does give developing countries access to industrialized
markets, but it also forces their
industries to compete with large transnational firms, which have much
greater access to capital, economies of scale, and advanced technology.
In the service sector, locally-owned services with ties to the
community would have to face competition (and potential buyouts) from
multinational firms with no ties or stake in the welfare of the people. How might the lending policies of banks change?
Or the cost of hospital care for the poor, if private HMO giants
run them? The proposed
Multilateral Investment Agreement now under negotiation for inclusion in
the WTO rules would even further diminish developing countries’ power
to protect local industries from being wiped out by foreign
corporations. Mao: How does WTO membership affect labor? SA: In the negotiations to create the WTO, members refused to include protection of workers rights, probably because the violation of core worker rights (and environmental standards) is often used by large corporations and governments to gain trade advantages. Under the WTO, a nation cannot discriminate against products on the basis of how they are produced—be it by child labor or with environmentally destructive technologies. U.S. law, for example, has banned tuna imports from countries that allow long circular nets designed to catch tuna, but which also trapped and killed dolphins. Yet in the eyes of the WTO, a can of tuna is a can of tuna, whether dolphins were killed in the production process or not. Built into the WTO rules is the ‘least trade-restrictive’ principle, a test applied to national laws designed to protect health, or environment—a measure is deemed necessary only if there is no less trade restrictive means available to achieve the measure’s legitimate health-related goals. The WTO also places the burden of proof on the accused country to prove that the product actually is dangerous. For example, when the EU banned artificial hormones in beef, the WTO ruled that the EU had to prove that such hormones are not safe in order to allow the ban.[xvi] Mao: Shouldn’t that lead countries to argue that environmental damage and repression of workers’ rights are a violation of fair trade? SA: Some people do argue that. But governments have mostly avoided the issue. Part of the problem is that as competition increases, there is pressure on the governments themselves to improve their relative competitiveness by lowering labor and health standards. Developing country governments argue that they should not be held to the standards of the First World labor unions—that this only means that instead of having a bad job, their people end up with NO job. And in the industrialized nations, labor movements have less clout than corporate lobbyists. Our position is that no global body should be able to challenge any nation’s health, safety, environmental or other laws as being too stringent; it is up to each nation to determine how high standards should go. At the same time, no nation should be allowed to gain unfair advantage in international trade through the denial of worker rights. A new global trading body should be allowed to enforce this. But it should be run more democratically, and with more sensitivity to developing country needs to protect domestic industries and services. However, that is not the way the current WTO operates. Mao: Your witness. Deng: Dr. Anderson, isn’t it true that decisions are made in the WTO by consensus, rather than majority? SA: Yes, that’s true, at least in practice, though majority votes are not ruled out by the WTO statutes. Deng: And developing countries receive special treatment under WTO rules? SA: Yes. Three-fourths of WTO members are developing countries. They typically receive concessions in adjustment to full compliance with WTO rules, such as longer time periods for meeting commitments, and support to help developing countries implement technical standards. Mao: Dr. Anderson, has China received developing country status in its GATT/WTO negotiations? SA: When it applied for entry into GATT, in 1986, China requested ‘developing country’ status, basedon low GDP per capita and agricultural economic structure. The United States opposed their request, on the basis of China’s large size. This became one of the obstacles in negotiations. Mao: So China has not been offered such concessions up to now, has it? Thank you Dr. Anderson. In the hope of shedding further light on these issues, the prosecution calls Subcomandante Marcos, of Mexico. (Marcos takes the stand, wearing his customary black ski mask and smoking his trademark pipe.) Mao: Please tell us about yourself, and the movement you represent.[xvii] SM: Marcos was ‘born’ in 1983, in the jungles of the state of Chiapas. My life before that time is unimportant. What I have become since then is the result of living among the indigenous peoples, the tzotzil, the tzeltal, the chol…who have inhabited Mexico since before the arrival of the Spanish. I was a marxist, influenced by the maoist tradition, and at the beginning, I saw them as exploited people who we had to organize and show the way. But they had their own way of understanding the world, and we had to learn to listen to them. In the end, we made the adjustment from our orthodox way of seeing the world in terms of ‘bourgeois and proletarians’ to the communities’ collective democratic conceptions and their world view. From their own social organizations and village life, they sought the construction of a guerrilla army, at first defend themselves against the paramilitary squads of the local ruling elites. This was the origin of the Zapatista Army of National Liberation (EZLN), named after Emiliano Zapata, who fought for land and liberty during the Mexican Revolution. We also wanted land, liberty, and democracy. On January 1, 1994, we attacked the town halls of several towns in Chiapas, to demand our rights. We have been fighting ever since, though now more with words and information than with guns. Mao: So the EZLN rebelled because the people were poor? SM:
In part. Chiapas is
extremely poor, even compared to the rest of Mexico.
GDP per capita in Mexico
City is more than five times as high as GDP per capita in Chiapas.[xviii]
In addition, people in Chiapas had to live without health care or
electricity or clean water. For example, 21% of homes in Mexico have no drinking water,
but 42% of homes in Chiapas lack this service.[xix]
In some municipalities in Chiapas, nearly three fourths of the
homes have no drinking water service.
Before the rebellion, the United Nations Development Program
issued a report on the state of Human Development in Mexico—as they do
for many countries each year. This report warned that regional disparities threatened the
political stability of 17 countries.
One region specifically listed as a future source of trouble was
Chiapas. Again, this was
before they knew of our organization—simply chosen because such
extreme levels of inequality are cause for political concern.
In 1994, the UNDP listed China as another country where the risk
of such instability had increased due to excessively large regional
gaps.[xx] Mao: How did Mexico’s trade opening affect the Mexican people, and Chiapas in particular? SM: To begin with, inequality increased. Inequality in Mexico has historically been high by world
standards,
much higher than in China. But
this level of inequality increased between 1984 and 1994, from a GINI of
.46 to a GINI of .51.[xxii]
While Mexico boasted 24 new billionaires, the income share of the
poorest 20% of the population actually shrank.
The number of poor reached alarming proportions.
According to the World Bank, close to 60 percent of the Mexican
population live below the poverty line.
Since the beginning of market reforms, real wages have
deteriorated. Minimum wages have fallen by about two-thirds since 1980.[xxiii] Mao: Indeed. No further questions. Deng: If I might, could I ask you to tell us how trade has affected the Mexican economy as a whole? What has happened to national wealth, and growth rates? SM:
If you look at national statistics, exports and imports have
grown substantially, but have been mostly focused on the United States,
especially since NAFTA gave greater trade concessions to trade with the
U.S. In 1980, Mexico
exported $12.5 billion to the United States and imported $15.1 billion.
By 1993, the last pre-NAFTA year, exports to U.S. had increased
to $43.1 billion. We also
see a more diversified export portfolio.
Once, Mexico mostly exported oil.
Now, manufactured goods are far more important than oil to export
earnings. Deng: But overall, would the Mexican economy have been better off without trade? Or would it simply have sunk into the pit it was in for four years prior to trade liberalization? SM: Obviously, I cannot answer that. I can only tell you what I know: that trade has made a few Mexicans and foreign companies very rich, and reduced other Mexicans to abject poverty. Deng: Yet Mexico was not equal, or prosperous prior to these changes? Was Chiapas ever wealthy? SM: The wealth of Chiapas is her people. Bad government explains her neglect. And inequality has increased since these policies were implemented. Mao: I think Subcomandante Marcos’s testimony has been more than clear. I have no further questions for him. The prosecution calls Mikhail Gorbachev. You were the leader of the Communist Party of the Soviet Union, were you not? MG: I became General Secretary of the CPSU in 1985, and governed Russia until I was deposed in 1991. I made it possible for Eastern Europe to reform, and opened arms reduction talks with the United States, for which I received the Nobel Peace Prize… Mao: Yes, well never mind all that now. I didn’t call you to talk about military strategy. I would like you to explain to the court your policies of perestroika. MG: Perestroika means ‘restructuring’ in Russian. Primarily, it involved decentralization of economic decision-making in order to permit individual firms to increase efficiency and take initiative. They were still state-owned firms of course. It was never my intention to dismantle central planning and the state sector. I did not want to endanger the authority of the Communist Party or open up to the West completely, although I did encourage more foreign investment and reduce barriers to foreign contacts. I simply wanted to improve efficiency and improve the output of consumer products by reducing the burden of military expenditure. That’s why the arms talks… Mao: I know about the arms talks. What were the results of your economic reforms? Things did not go as planned, did they? MG: Well that was not my fault. I wanted gradual reform, not radical dismantling of the Communist state. That was the idea of that arrogant, ambitious, ungrateful, vodka-soaked son of a... Mao: Careful. MG:
Yeltsin. Boris
Yeltsin. I brought him into
my government in 1985, and he rewarded me by taking advantage of the new
openness to criticize my government for moving too slowly.
I couldn’t defend him. But
he just wouldn’t go away. He
maneuvered himself into a position as president of the Russian Republic,
according to an innovative procedure that I created.
Meanwhile, opposition to my political and economic reforms was
growing among the hardline communists, and in August 1991, treasonous
military plotters attempted a coup and held me prisoner.
Yeltsin seized that moment to make himself look like a big hero
by climbing up on that tank and defying the plotters, while I was
captive and couldn’t speak for myself.
The coup failed, but after that, it was all over for me.
By December of 1991, Yeltsin had negotiated the dissolution of
the Soviet Union, and took over in 1992 as president of the reduced
Russian state. Mao: What happened to the Russian economy? MG:
It fell apart. GDP shrank by an average of 3.6% per year from 1992-1996.
In four out of five years, industrial production fell, and the
overall economy shrank. Agricultural production fell every single year.
Consumer price inflation averaged almost 600% per year, although
I have to admit it finally went into double digits in 1996.
Unemployment went from almost nothing in 1991 to 9.3% last year.[xxix]
Real wages fell by more than half.
Sometimes the government could not even pay the army officers in
charge of nuclear weapons. Mao: I can’t disagree with you there. No further questions. Deng: It seems to me that you may have left out just a few things in your testimony, Mr. Gorbachev. Tell me, what was the growth rate of the economy in 1990—before Yeltsin took over? MG: The economy shrank that year by about 5%. Deng: So, Russia’s economic difficulties were not exclusively the fault of Yeltsin’s impatient opening. Indeed, weren’t they the reason you felt you had to initiate perestroika in the first place? Compared to China, didn’t the Soviet Union face bigger obstacles to market reforms? MG:
China’s economy was unlike ours in many respects.
The Soviet economy was much more centralized.
I believe Chairman Mao experimented with our type of centralized
command economy in the 1950s, but preferred a more decentralized system.
We also had a larger system of state-owned heavy industry, and a more
extensive welfare plan to cover social needs. Deng: So this wasn’t all about trade policy. You also opened up politically, a mistake I avoided in China, and one that probably cost you your position. MG: You mean glasnost. I explained all that to you back in 1989, shortly after your Tiananmen incident. I had no choice. I started with an attempt at economic reform. But the entrenched and dogmatic nomenklatura stood in the way of any such attempt and thwarted the economic changes we proposed in 1987. I had to open up the political system in order to use public demand for consumer goods, and public support for my reforms, as a lever against the hardliners who wanted no change at all. Even Yeltsin once was useful to me in this role. I could threaten them that if they did not accept my modest reforms, they would have to deal with his more radical ones. I did not know, and they did not guess, how strong public pressure would become. But even now, looking back, I think one cannot democratize the economy while leaving all the rest as it was before. Even within a one-party system, greater pluralism is necessary. Your actions at Tiananmen Square only postponed these political reforms.[xxx] Deng: Well, we shall see about that. No further questions. Mao: One final question. The breakup of the Soviet Union into many independent states—to what extent did that reflect your policies of perestroika and glasnost? MG: The Soviet Union was many nations in one, from its foundation. But it was united under the Communist Party. What endangered that unity was the internal division and weakness of the Communist Party itself. It was never my intention to harm the Communist Party, but I must confess that both perestroika and glasnost probably contributed to that. Mao: Thank you. The prosecution now calls its final witness, Yang Shangkun. (Yang takes the stand, glaring angrily at Jiang Zemin) Mao: We have heard testimony regarding the demonstrations at Tiananmen Square. That happened long after my death, of course. You were head of the Military Commission at that time, and so had a major part in the affair. Could you tell us what happened, and what connection—if any—it had to market reforms? Yang: The Tiananmen incident began in April 1989, when university students gathered to protest in favor of greater political liberties in China. For several months, they occupied the Square, attracting much foreign attention. They even built a statue copying the American statue of ‘Lady Liberty’, which they called the “Goddess of Democracy.” Many claimed that with greater economic freedom and responsibility should come greater political freedom and responsibility as well. They criticized the Communist Party’s hold on power, and alleged corruption. At one point, there were more than a million people gathered around the square. Not all of them were students. Some were unemployed rural workers displaced from the countryside. The demonstrations had become too dangerous. They had to be stopped. The Communist leadership warned the students repeatedly to stop, but they would not listen. Eventually, it was decided to use the People’s Liberation Army to clear the public square. Some demonstrators were killed in the process of breaking it up. Many thousands more were arrested and corrected for their role in the demonstrations. Mao: Every Communist must grasp the truth that political power grows out of the barrel of a gun. But the Party commands the gun, and the gun must never be allowed to command the Party.[xxxi] How did the People’s Liberation Army react to the orders to use force against the students? Yang: That was one reason why the leaders waited several months to strike, because a number of high-ranking party and PLA officials objected to using the PLA against the students. The PLA is a people’s army. It should not be used against the people. In the end, the PLA accepted Party authority, but it was decided to use troops from the farther provinces—not stationed in Beijing itself—to handle the removal of the students. Mao: So the market reforms opened up a dangerous chasm among the people that threatened to distort the proper relationship between the Party and the People’s Army. We must also consider, of course, the risk of even deeper conflicts, threatening to tear apart the vast Chinese nation. How worried is the People’s Liberation Army about this threat? Yang: Many of our provinces are the size of a medium-sized nation. Some also contain substantial ethnic minorities, as in the case of Tibet. The People’s Liberation Army would not like to see a situation evolve like the one in Chechnya, where rebel separatists continue to wage an impossible war against the Russian military, with heavy losses. Mao: Thank you. Deng: About this ethnic conflict—isn’t China is more ethnically homogenous than the Soviet Union? Yang: Yes, I suppose. More than 90% of China’s population is ethnic Han. Even in provinces with substantial ethnic minorities, the Han typically outnumber them. The problem may be that some of the poor provinces also have large ethnic populations—as in Chiapas. Of course, they have not succeeded in achieving autonomy. Deng: Were you personally opposed to the use of force at Tiananmen? Yang: As you know, I supported your decision. China is not ready for democracy. We cannot do without our Communist Party leadership. It dangerous to permit such political challenges to the Party’s authority in the midst of a process of reform. Even then, we could see risks in what was happening to Gorbachev in Russia. Then you betrayed me, forced me out to make room for HIM [gesturing to Jiang Zemin], your pathetic puppet. I still have influence, connections… Deng: Perhaps less than you think. Tell me, what economic interests does the PLA have? Yang: The PLA has substantial economic investment in state-owned enterprises. Deng: So the PLA could benefit if trade and production increases? Yang: Perhaps. But many military enterprises would also face increased scrutiny and competition. Industrial production in the state-owned sector has grown more slowly than in the private sector. That is partly because we maintain a commitment to our employees, to their jobs and welfare, which private companies do not. They get rid of people to keep their profits high. State-owned companies protect the workers. Deng: What about the PLA’s interest in obtaining foreign military technology? Yang: The capitalists won’t give us that technology anyway, even under the WTO. National security, they say. We have other ways of getting that technology that don’t depend on buying it. Deng: That is all for me. Mao: And for me too. The Prosecution rests. The Defense calls its first witness: Zhu Rong-ji. Deng: You have been a staunch defender of the economic reforms I launched in 1978, and in the last few years, you have been a valuable manager of the reform process, in the banking system particularly. Please summarize for the court the principal features of our process of reform. Zhu: The court already knows… Deng: Indulge me. Zhu:
Very well. As you
know, the reform process has followed the principle of ‘feeling the
stones to
cross
the river.’ Economic
reform is tricky, and dangerous, like the slippery rocks of the river.
It is necessary to proceed with caution. So we tried out reforms in one area, before extending them to
others. The first steps
were taken in the agricultural sector, where the vast majority of
Chinese people live. The
Household Reponsibility System, for example, lets peasants make
production and marketing decisions instead of the central
bureaucracy—and the result has been a substantial increase in
agricultural production. Deng: How has China’s trade policy affected its national growth rate? Zhu:
Overall, China’s GDP has grown by an average of nearly 10% from
1979-1995, an impressive rate
of growth even among the most successful economies.[xxxiv]
But annual exports from China have grown even more quickly, at
nearly 17% per year.[xxxv]
By way of comparison, world trade grew on average about 7.7% per
year.[xxxvi]
Trade and exports have led China’s growth spurt.
Today, two out of every three toys sold in America were made in
China.[xxxvii] Deng: Has trade benefited only foreign companies, as Chairman Mao suggested? Zhu: I am sure that they have benefited, but so have the Chinese people. In the first place, they have jobs. We also own and operate many successful export businesses ourselves. Some Chinese have become rich. Township and Village Enterprises contribute even more than foreign invested firms to national export earnings. In 1985, TVEs produced about 4% of total exports. By 1993, they produced about 1/3 of the total.[xli] This money benefits peasants directly, because collective ownership—often by local governments—is common. Deng: If China has done this well without belonging to GATT or the WTO—why should China join the WTO now? Zhu:
The main reason is that as China’s success has grown, so has
resistance from other nations, to letting
China trade with them. We
have been accused of dumping products on the market, or producing them
with coerced labor. We have
also seen political manipulation by people who argue that their nations
should not trade with a country they claim abuses human rights.
The United States in particular has threatened repeatedly to
raise punitive tariffs. In
the United States, after Tiananmen, there was a self-righteous reaction
that hurt our exports for a time. Personally,
I think they are mostly afraid of competing with China’s cheap and
abundant labor. The United States runs a large trade deficit with China every
year. Deng: Your witness. Mao: I am curious—in these reactions against China, has any country—even the United States—revoked China’s most favored nation status? Zhu: No. Mao: And why do you suppose that is? Zhu: They say that it is better to involve China in the world system than to exclude it. That this makes the world more secure against a belligerent China. Mao: So they are afraid of China. Afraid of China’s size, its military force—the largest in the world—its nuclear weapons. Or are they attracted to China as a way of getting even richer, by exploiting China’s cheap labor and selling imports to its potentially vast internal market? Zhu: I suppose that might be true too. Mao: I submit that it IS true. What’s more, this same size, this same labor market, this same position in the world system means that China more than most other developing nations can afford to say no to the capitalists without totally losing access. What’s more, by entering the WTO, China gives up the advantage of its relative power and submits itself to international rules and arbitration. I refer you to a recent article by Robert Ross, in the American journal Foreign Policy. This American, who wants the United States to offer more concessions to get China into the WTO, says that “If this process is delayed, China will develop sufficient economic power to resist pressures for reform…while it is in the interest of the United States and other industrial countries that China establish a liberal economic system as soon as possible, it is in China’s interest to prolong its current policies. Although China has succeeded in expanding exports, the long-term expansion of its industrialist base requires the use of the protectionist measures that Indonesia, Japan, South Korea, and Taiwan employed to assist their nascent industrial systems prior to liberalization.” | ||||||||
