It's early afternoon, and I'm sitting in my home office talking with a salesman who is giving me the same pitch as the last guy I talked with. I don't know it in the moment, but eventually this pitch is going to make me think about Mao's China.
Two years ago we got solar panels installed on our house. Unfortunately, the performance hasn't met our expectations. So now I'm talking to salesmen about possible solutions. Even though they are from different companies, the pitch is the same. In an apocalyptic scenario, when the power grid is down, the only people who will have power are the ones who have generators and the ones who have batteries. But in this apocalyptic scenario, fuel is going to be impossible to get. The only ones who can reliably have power are the houses with batteries.
I'm not a doomer or a prepper, so this was not a persuasive argument. But in this apocalyptic scenario, is there a battery for the economy? When the economy's grid turns off, is there something that switches on and allows people to survive?
To address this question, we don't have to imagine a future apocalypse. We can look at some disasters that have already happened. That's how I got to Mao's China.
From 1959 to 1961, China faced its own apocalypse. During that period, millions of people died. In fact, it was such a disaster that it is one of the only events that shows up in the statistics on how many people die each year. This was Mao's Great Famine.
While the Great Famine included natural disasters such as drought and flood, to say that 15 million people died from those is like saying 200,000 people in Haiti died from the earthquake. Most of us remember that in January 2010 a 7.0 magnitude earthquake hit Haiti. But most of us forget that in March 2010, less than two months later, an 8.8 magnitude earthquake hit Chile. That's 500 times more energy in Chile's earthquake than in Haiti's. Yet instead of 200,000 people dying, there was barely more than 500 casualties. That's 500x more energy but only 0.25% of the deaths. How?
Chile's buildings had been engineered to be earthquake resistant while Haiti's were cinder blocks without sufficient reinforcement. Similarly, China's droughts and floods were within the normal range of weather variation in China's history. The problem was that Mao had transformed China from a disaster-resistant economy to one made of unreinforced cinder blocks.
For example, Mao's Great Leap Forward aimed to turn China into an industrial powerhouse before its agriculture could support the shift. His government pulled grain from the provinces to feed urban workers and trade for industrial inputs. Rural areas were short on food.
But it got worse. To get more grain, Mao's party gave high-powered incentives to local officials to increase yields. But since the government had no way of verifying reported yields, the officials lied and exaggerated their provincial productivity. The government believed the reports and decided to extract even more grain from the impoverished farmers. The hungry farmers were on the verge of starving.
But wait, there's more. Mao thought that yields could be even higher if sparrows weren't eating the grain. So he had the country eradicate the birds. But since birds also eat pests, there was nothing to stop insects from devouring the grain the next year. Farmers who were already losing all of their food to the government could hardly support themselves.
Then, like a traffic jam when you're already late, there was a drought.
That's about as close to an apocalyptic scenario as one can imagine. So, in an economy as bad as this one, was there an economic battery that could help power the people?
Where buyers and sellers met, a black market emerged. As trade moved from the shop on to the street, markets appeared on street corners, outside department stores, by railway stations, near the factory gates. The black market ebbed and flowed in a legal twilight zone, receding with each crackdown only to reappear as soon as the pressure abated. Sellers would furtively accost buyers and pull goods from paper bags or coat pockets, while others sat on kerbs, spreading out their wares on the ground, from foodstuffs and second-hand bric-a-brac to stolen goods. The public security services would conduct regular sweeps, chasing away the black-marketeers. But they kept returning. And when the local authorities turned a blind eye, makeshift bazaars emerged, with people gathering at an agreed time to barter goods, until the whole affair grew into a more permanent market with buyers and sellers flocking in from the neighbouring villages.1
Like earthquake-resistant buildings, markets can absorb local shocks. One observation of the Great Famine is that there was enough food in the country to feed everyone, but no one knew who needed it. The central planning system relies on a small group of people to know the needs and capabilities of the entire economy. Markets, on the other hand, convey this information through prices. If I don't have food, I tell the market I'm willing to pay high prices. Those who have food see those prices and reallocate their resources to where they can make the highest profits. That's why, even when they are illegal, markets emerge.
When the economy's power grid of central planning failed, the decentralized battery was local markets. In the city of Tianjin, the black market had become so prevalent that in 1962, local officials decided to just legalize it. That year, the market supplied half of all fruit and a quarter of all pork.2 In other words, if not for markets, the death toll of the Great Famine would have been even higher.
Communist officials who were in the villages and seeing the damage of party policies quickly agreed that markets were the solution. "This way people won't starve to death," said one official who facilitated market-based reforms in the wake of the famine. "If this is capitalism, then I prefer capitalism. Do we really want everyone to be poor under socialism?"3
But Mao, who had no problems feeding himself in the insulated central office, could not see the local problems in his central information hub. He mistook the lifesaver for a noose and decried the decentralized solutions. "Feudal forces, full of hatred towards socialism, are stirring up trouble, sabotaging socialist productive forces." He added, "Who would have thought that the countryside harboured so many counter-revolutionaries? We did not expect the counter-revolution to usurp power at the village level and carry out cruel acts of class revenge"4
Instead of assuming that Mao was a blind ideologue, let's give the most charitable interpretation of his position. Assuming he was well-intentioned, he fell victim to the doctors-disease fallacy. A kingdom had been hit by a plague, and the king asked his court to assess the problem. His officials returned with data with an interesting correlation: the cities with the highest incidence of disease also had the most doctors. The king, mistaking correlation for causation, then decides to kill the doctors. He is shocked that the plague worsens. He failed to realize that doctors were not causing the disease, they were responding to it.
Markets are the economy's doctors. They did not cause the problems in local villages, they were kicking on to solve them. But just like eliminating doctors makes disease worse, attacking markets makes the economy worse. As Mao sought to eradicate capitalist ideas in his Cultural Revolution, he immiserated the people. "Millions went hungry, some of them eating mud or stripping bark from trees."5
But even when Mao tried to disable the battery, it still kicked in.
Set amid dusty sandstone coloured hills in northern Shaanxi, Yan'an is one of the most hallowed places in communist propaganda. At the end of the Long March in 1936 it was taken over by the communists, and became their temporary capital during the Second World War. Decades later, Yan'an had become a symbol of the ideal communist man, one who merged with the collective in war and work alike. The 'Yan'an spirit' heralded selfless dedication to the greater good, as people fused into a collective force powerful enough to move mountains.
While Yan'an loomed large in the communist imagination, the place itself was dirt poor and had been largely bypassed by the revolution. But some local people did not wait for an invitation from above to pull themselves out of poverty. When a propaganda team arrived in Yan'an in December 1974, they found a thriving and sophisticated black market. One village had abandoned any attempt to wrench food from the arid and parched soil, specialising in selling pork instead. In order to fulfil their quota of grain deliveries to the state, they used the profit from their meat business to buy back corn from the market. Local cadres supervised the entire operation. No one in the village seemed to have any interest in Politics. More than three years after the demise of Lin Biao, posters of the side while heir apparent still fluttered in the wind. Slogans painted on out side walls were fading, and dated mostly 1969.6
Even in a centralized system with brutal enforcement, markets are a redundancy that keep the economy running.
Mao’s Great Famine by Frank Dikotter, p. 205
ibid. p. 206
The Cultural Revolution by Frank Dikotter, p. 16
ibid., p. 15
ibid, p. 271
ibid., p. 270. Emphasis added