Conclusion: Evaluating The Political Record Of Economic Reform

The political challenge of economic reform in communist states is to devise policies that build a coalition of support for the reform drive while also improving economic efficiency. The reformist leaders at the top of the Communist Party, Deng Xiaoping and Zhao Ziyang, appeared to have done a masterful job at designing a political strategy of reform that suited the Chinese political institutions. While maintaining the CCP's leadership over the government, they delegated to the government bureaucracy increased discretion. This modification of the principal-agent relationship between Party and government seemed to dilute the influence of conservative Party leaders who might have sabotaged the reform drive, at the same time that it improved the quality of policy decisions. Yet, as the ultimate principals, the top Party leaders retained the power to take policy initiatives, set the ideological line, and replace government

cadres. The management-by-exception method of decision making employed under this revised delegation relationship between Party and government provided the framework for bargaining out reform policies that could be supported by key bureaucratic agencies. Although the widening of consultation within the government bureaucracy made the task of building consensus more difficult, it meant that the policies that emerged would be satisfactory (or at least tolerable) to all groups. Zhao Ziyang's strategy of gradual reform, playing to the provinces while postponing the most redistributive measures and working out compromises by giving side-payments, was effective at sustaining the momentum of reform until 1988.

The political choices made during 1980–88 built a coalition of support for economic reform but made the political challenge of future reforms much more difficult. The path of reform reflected more a political logic than an economic logic. By postponing industrial price reform and the introduction of a hard budget constraint, the reformist leaders stimulated rapid economic growth accompanied by material shortages, budget and foreign exchange deficits, inflation, and corruption. These new economic problems backfired on the reform drive at both the elite and the mass level. They provided ammunition for Party conservatives who opposed radical reforms and made a play to reclaim dominance within the Party. At the mass level, the social mobilizational effects of market reforms and public dissatisfaction with inflation and corruption sparked social protest, beginning in late 1986 and building to the massive demonstrations in eighty-four cities during spring 1989. The conservatives pointed to protests as evidence that reform was leading to social chaos (luan ) and that new Party leadership was needed to restore stability. Despite the achievements of Deng and Zhao at brokering reform policies through the Chinese bureaucratic system, the combination of elite power struggles and social unrest destroyed the momentum of reform in 1988–89. As the principal-agent framework would predict, once the conservatives strengthened their hold on the Communist Party leadership organs (with the firing from the Party secretary position of Hu Yaobang in 1987 and Zhao Ziyang in 1989), the policies emerging from the government changed from reform to retrenchment. Whether the reform drive will recover its momentum in the future depends on the outcome of the competition for Party leadership after Deng Xiaoping's death.